DIY credit card arbitration: You may be able to opt out

Most card issuers with mandatory arbitration clauses offer a fine-print escape hatch

By  |  Published: July 25, 2017

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

How to opt out of credit card arbitration

Many credit cards and other financial services require you to take disputes to private arbitration instead of court when you are wronged.

Now, lawmakers are battling over the use of mandatory arbitration in contracts, which consumer advocates call a "rip-off clause," saying it can shield companies from accountability.

The government's consumer watchdog agency has written a rule to limit how companies use arbitration – but deregulation-minded Republican lawmakers are working to repeal it. The House of Representatives voted 229 to 184 to void the rule on Tuesday in a party-line vote. A Senate repeal measure would only need GOP support to win, and the White House has signaled that President Trump will sign it.  

While Washington squabbles over the issue, credit card users can work to preserve their own legal rights by:

  • Choosing a card that doesn't require arbitration.
  • Rejecting the arbitration requirement in most cards that include it.

How, and when, it's possible to reject credit card arbitration clauses
A review of credit card contracts on file at the Consumer Financial Protection Bureau by CreditCards.com found that, of 11 major issuers, eight contained mandatory arbitration clauses. These contracts required customers to take disputes to arbitration instead of court, and forbid them from joining class-action lawsuits.

However, most of the issuers with arbitration clauses – five out of those eight – offered users a fine-print escape hatch. Within 30 to 60 days of opening the account, users can reject the arbitration clause by sending a formal rejection letter in writing.

Consumer advocates say, however, that the opt-out clause buried in the fine print is unlikely to be used by large numbers of people, limiting its effectiveness in restoring people's legal rights.

"It's a fig leaf merely intended to help the clauses look voluntary when they are not, and stand up in court," Lauren Saunders, associate director of the National Consumer Law Center, said in an email response to questions.

Does your credit card issuer allow you to opt out of mandatory arbitration?
The chart below shows the 11 major credit card issuers in the U.S. and their arbitration policies at a glance. To learn more about each card issuer's arbitration policy and instructions on how to opt out of mandatory arbitration, click on the link "See individual card details:" 

CREDIT CARD ARBITRATION POLICIES AT A GLANCE

Card issuer Requires mandatory arbitration? Allows opt-out?
American Express Yes Yes
Bank of America No N/A
BarclayCard Yes No
Capital One No N/A
Chase No N/A
Citibank Yes Yes
Comenity Yes Yes
Discover Yes Yes
Synchrony Yes Yes
U.S. Bank Yes No
Wells Fargo Yes No

Sources: Credit card agreements on file at U.S. Consumer Financial Protection Bureau as of July 20, 2017

See individual card details

What is arbitration
Arbitration is a private dispute resolution process. Credit cards that require it for claims not resolved by customer service usually use the American Arbitration Association to administer cases and resolve disputes. Only individual legal claims in small claims court are exempt from the arbitration requirement.

Citibank's clause, for example, explains that "you cannot go to court, have a jury trial or initiate or participate in a class action if you have a dispute with us," the company's cardholder agreement states.

In a 2015 study, the U.S. Consumer Financial Protection Bureau found that over 50 percent of the credit card business, measured by balances, is covered by arbitration requirements. For checking accounts, about 44 percent of deposits are subject to an arbitration requirement, which is common at large banks. Smaller and mid-sized banks, and credit unions, usually don't have arbitration requirements.

Most arbitration clauses include a "class-action waiver," meaning a prohibition against joining or launching a class-action lawsuit involving a group of similar claims. Class actions allow consumers to get refunds and other kinds of payback for relatively small claims that affect large numbers of people, which wouldn't make sense to pursue individually.

Arbitration has a controversial history in the credit card market, where several large issuers dropped the policy after a scandal involving the National Arbitration Forum, then one of the largest arbitration dispute handlers. While representing itself as a neutral arbiter, the company was actually linked to a large collection agency.

“I generally think opt-out isn't enough. You have to know you can opt out, you have to find it … these are long contracts.”

Consumer bureau's rule ignites battle
The CFPB announced a final rule prohibiting class-action waivers in arbitration requirements on July 10. It published the rule in the Federal Register on Wednesday. Companies could still require arbitration in individual cases, but would have to file information about the cases with the consumer bureau, including the outcomes.

The chairman of both House and Senate banking committees, Rep. Jeb Hensarling and  Sen. Michael Crapo, announced a push last week to repeal the regulation using the Congressional Review Act, calling it bureaucratic excess that will harm consumers. The review act allows repeal of a regulation within 60 legislative days after it is published. A simple majority is required in both houses of Congress for passage, meaning that united Republicans could repeal the CFPB's arbitration rule over Democratic opposition.

The American Bankers Association applauded the repeal effort, saying that arbitration is more efficient than court and results in better outcomes for consumers than the legal system.

“As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking,” ABA President Rob Nichols said in a statement.

If the rule survives repeal, and likely court challenges, it would take effect for contracts signed after March 19, 2018. Existing contracts would be grandfathered, meaning that consumers would still be bound by existing class-action waivers.

Allowing new customers to opt out of the arbitration requirement is seen as giving the contract greater legitimacy.

Whether the opt-out provision actually restores consumers' legal rights, however, depends on whether enough consumers use it to expose the corporation to court action. If relatively few customers take advantage of the opt out, there won't be enough of them to support a class-action lawsuit if a company action harms large numbers of customers.

"I generally think opt-out isn't enough," said Michael Best, director of advocacy outreach at the Consumer Federation of America. "You have to know you can opt out, you have to find it … these are long contracts."

“As Congress considers changes to the CFPB’s structure and accountability, we [the American Bankers Association] also urge lawmakers to overturn this rulemaking.”

Arbitration versus court
Supporters of arbitration say that class-action lawyers often reap most of the benefits, at consumers' expense. Consumer advocates respond that banning consumers from joining class actions merely shields companies from accountability. Before its fake account scandal became widespread knowledge, Wells Fargo used its arbitration requirement to block lawsuits from affected customers.

In its 2015 study, the CFPB examined 419 financial services class-action settlements from 2008 to 2012, which covered up to 350 million class members. Based on the 60 percent of cases where data was available, cash won by plaintiffs totaled $1.1 billion, after expenses and fees, including legal fees. The amount doesn't include in-kind relief, such as changes in company policies.

By comparison, a study of AAA arbitration cases in 2010 through 2012 found consumers filed an average of 411 cases a year. Average awards were higher than in court, but only a relative handful of people benefitted, with total payouts well under $1 million. In 240 company arbitrations initiated by companies where results could be determined, arbitrators sided with the company 93 percent of the time.


Arbitration and opting out: individual card details

 


  Yes       No       Not applicable


American Express Bank

Amex EveryDay, Blue Cash, Delta Reserve, Platinum Card for Goldman Sachs
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Send written rejection notice of arbitration provision stating that you reject the arbitration provision of the card agreement within 45 days after first card purchase, to American Express, P.O. Box 981556, El Paso, TX, 79998. Include your name, address, account number and personal signature. Rejection will apply to other open accounts with American Express, except pending claims, and will not affect use of the card or other benefit, products or service connected to the account. For a sample rejection notice, go to americanexpress.com/reject.

Card agreement





American Express Centurion Bank

American Express Gold Card, Green Card
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 45 days after use of card

Send written rejection notice of arbitration provision stating that you reject the arbitration provision of the card agreement within 45 days after first card purchase, to American Express, P.O. Box 981556, El Paso, TX, 79998. Include your name, address, account number and personal signature. Rejection will apply to other open accounts with American Express, except pending claims, and will not affect use of the card or other benefit, products or service connected to the account. For a sample rejection notice, go to americanexpress.com/reject.

Card agreement



Bank of America

Visa Signature, World Elite Mastercard
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Barclaycard (Barclays Bank Delaware)

Cardholder agreement
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Capital One N.A.

Agreement for consumer cards
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Capital One (USA) N.A.

Visa Signature, World Mastercard
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Chase Bank USA

Amazon.com Visa Signature-World MasterCard, Freedom Unlimited Visa-MasterCard
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Citibank N.A.

Citi Double Cash, Hilton HHonors Visa Signature, Aadvantage Gold World Elite
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 45 days

Send written notice rejecting arbitration provision of card agreement to Citibank PO Box 6195, Sioux Falls, SD 57117-6195 within 45 days of account opening. Include name, address, account number and personal signature. Rejection will not apply to other accounts, and will not affect your other rights or responsibilities, or the use of the account.

Card agreement



Discover Bank

Prime combined pricing schedule and cardmember agreement, Near prime cardmember agreement
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 30 days

Send written rejection notice of arbitration provision of the account within 30 days of receiving card to Discover, PO Box 30938, Salt Lake City, UT, 84130-0938. Include name address, phone number, account number and personal signature. Do not send with other correspondence. Rejection will not affect your other rights under cardholder agreement.

Card agreement



Wells Fargo Bank

Visa Signature, Dillards American Express
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Wells Fargo Financial National Bank

Private Label card agreement
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



US Bank N.A.

Visa Signature and World MasterCard, US Bank Visa and MasterCard Classic, Gold and Platinum
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

Card agreement



Synchrony Bank

Walmart MasterCard, Belk Rewards, Care Credit, Stein Mart
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 60 days after opening account

Send written notice rejecting the arbitration section of the account agreement within 60 days of opening the account. Include your name, address and account number. Mail to Synchrony Bank, P.O. Box 965012, Orlando, FL, 32896-5012.

Card agreement



Comenity Bank

Abercrombie & Fitch, Crate & Barrel, Williams Sonoma
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 30 days of being provided credit card agreement

Mail statement naming each cardholder, saying you reject the arbitration provision of the cardholder agreement within 30 days of receiving the agreement to Comenity Bank, PO Box 182422, Columbus, Ohio, 43218-2422. It must be signed by each cardholder. This will not affect your ability to obtain credit.

Card agreement



Comenity Capital Bank

Bed Bath & Beyond Mastercard, David's Bridal
Arbitration requirement?
Class action prohibition?
Exception for small claims court?
Opt-out available?

How to opt out

Must opt out within 30 days of being provided credit card agreement

Mail statement naming each cardholder, saying you reject the arbitration provision of the cardholder agreement within 30 days of receiving the agreement, to Comenity Capital Bank, PO Box 182422, Columbus, Ohio, 43218-2422. It must be signed by each cardholder. This will not affect your ability to obtain credit.

Card agreement



See related: Limiting mandatory arbitration will benefit consumers, CFPB rule: Consumers should be able to band together and sue


Join the discussion
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.




Updated: 10-18-2017

Weekly newsletter
Get the latest news, advice, articles and tips delivered to your inbox. It's FREE.


ADVERTISEMENT