Consumer Arbitration Agreements: 8.7.8.3 Special Case of Tribal Arbitration
A number of creditors seek to require arbitration pursuant to a tribal arbitration provider and the rules of that tribal arbitration provider.
A number of creditors seek to require arbitration pursuant to a tribal arbitration provider and the rules of that tribal arbitration provider.
West Virginia’s highest court declares unconscionable an arbitration clause that permitted a lender to designate the decision maker, when the arbitration provider was compensated on a case-volume fee system.369 The reason was that “the decision maker’s income as an arbitrator is dependent on continued referrals from the creditor,” and thus the arrangement “so impinges on neutrality and fundamental fairness that it is unconscionable and unenforceable under West Virginia law.”370 The court cited i
Secrecy disadvantages individuals bringing arbitration proceedings against corporations when that corporation was party to a prior arbitration proceeding raising similar issues. While the corporation knows the details of that prior proceeding, the individual in the subsequent proceeding does not. Facially neutral confidentiality provisions disproportionately favor repeat participants who have firsthand knowledge of how prior arbitrations against them have fared.
Another possible ground for finding a confidentiality requirement unconscionable is if it explicitly provides or has the effect of only allowing the business to enforce the confidentiality provision, but not the consumer.438
A number of courts have concluded that confidentiality and secrecy provisions are not grounds for a finding of unconscionability.439 They often view secrecy as part of the nature of arbitration,440 and find an attack on a secrecy requirement to be just an attack on the arbitration requirement itself. Such an attack, it is argued, singles out arbitration in a way prohibited by the FAA.441
Some courts, relying in part on language in the Ninth Circuit’s 2013 decision in Kilgore v.
It is common for a corporate defendant who has drafted an unconscionable arbitration clause, and who faces court scrutiny of the clause, to ask the court to rewrite the arbitration clause so that it will be enforceable: “We will agree to jettison the most extreme elements of the arbitration clause, and we ask the court to enforce the remainder of the clause.”
This section summarizes NCUA interpretive letters and releases relating to the preemption of state laws by federal credit unions issued from 1992 forward. The full text of these letters is available as online companion material to this treatise. Archived and recently released letters and opinions can be obtained from NCUA’s website: www.ncua.gov.
This chapter focuses on lender abuses involving credit card pricing and other practices. It discusses the history of credit card abuses, the types of bad practices, and the evolution of credit card regulation. This regulatory evolution culminated in the Credit Card Accountability, Responsibility and Disclosures Act of 2009 (Credit CARD Act), which is part of the Truth in Lending Act (TILA).
The use of credit cards is pervasive in American society, and they have become an increasingly integral part of American lives.
The most common type of credit card is a “general-purpose” credit card. These are credit cards that can engage in transactions over a network, such as Visa, Mastercard, American Express, and Discover, and are accepted by a wide variety of stores and businesses.
The widespread use of credit cards dates back less than eighty years. Charge cards were introduced in about 1914 by department stores, hotels, oil companies, and Western Union.20 These cards could only be used to purchase the lender’s goods and services, and the balance had to be paid in full each month. In the 1950s, Diners’ Club and American Express began issuing general-purpose cards that could be used at a variety of vendors.
Credit card companies were not always so free to engage in reprehensible behavior. Credit card deregulation, and the concomitant spiraling credit card debt of Americans, began in 1978, with the Supreme Court’s decision in Marquette National Bank of Minneapolis v.
The Credit CARD Act addresses some (but not all) of the worst abuses by credit card lenders.
The Credit CARD Act has resulted in enormous benefit for consumers.
The credit card industry defended its practices by arguing that deregulation benefited many consumers, with fewer annual fees, lower interest rates, and rich reward programs.79 In addition, the industry touted the “democratization of credit,” with credit cards available to the vast majority of Americans. It predicted that re-regulating rates and fees would raise costs and limit credit for the majority of consumers in order to help financially distressed borrowers.80
The credit card industry responded to the passage of the Credit CARD Act with new tactics, as well.89 One tactic was to promote credit cards that were ostensibly “professional” or business cards.90 Business credit cards are not subject to the Credit CARD Act or TILA.91 American households receive 10 million offers every month for business credit cards,92 and there is some question as to whether all of these c
One of the biggest problems with credit pricing that occurred prior to the Credit CARD Act was that lenders are not required to abide by a fundamental contract principle—that a “deal is a deal.” Credit card lenders were permitted to raise the interest rate for any reason, or no reason at all, by simply mailing a notice to consumers.
A penalty rate is an increase in a credit card account’s APR triggered by the occurrence of a specific event, such as the consumer’s making a late payment or exceeding the credit limit. Penalty rates are a relatively recent phenomenon, first appearing in the 1990s.101 A Government Accountability Office study found that the average penalty rate for the six major credit card lenders was about 27% APR, and that twenty-seven out of the most popular twenty-eight credit cards carried them.102
Universal default is an especially criticized form of credit card repricing. With universal default, credit card lenders impose penalty rates on consumers, not for late payments or any behavior with respect to the consumer’s account with that particular lender, but for late payments to any of the consumer’s other creditors. In some cases, lenders will impose penalties simply if the credit score drops below a certain number, whether or not the drop was due to a late payment or another factor.105
Penalty rates and universal default are not the only forms of credit card repricing. Lenders use change-in-terms notices113 to raise a card holder’s rates for any reason, or for no reason at all.114 Lenders have raised rates because card holders used too much of their credit line (despite the fact the card holders did not exceed their credit limits) or simply to make up for losses in the lender’s other business lines.115
The Credit CARD Act contains significant limits for lenders seeking to raise the annual percentage rate (APR) applicable to the existing or “outstanding balance” on an account. This protection also applies to certain fees and charges.
It prohibits a lender from increasing the APR or certain fees and charges on an outstanding balance,116 except pursuant to four exceptions:117
The Credit CARD Act permits a lender to increase an APR applicable to an outstanding balance at the expiration of a specified period of time, if: