Arbitration Victory for Consumers

We've had a number of blows recently at the U.S. Supreme Court, so it is with great pleasure that I learned that the Second Circuit Court of Appeals has brought a class-action back to life against major banks that require their credit card customers to settle disputes through arbitration-mills like the National Arbitration Forum here in Minnesota. (click here for the article).


Click here for the actual order via the Wall Street Journal. Here is an excerpt:

Assuming the facts asserted in the Complaint to be true,“[b]eginning before late 1998 or early 1999, Defendants began communicating with each othermand their co-conspirators concerning the imposition and use of mandatory arbitration clauses.”


After preliminary meetings and communications, the banks formed an “Arbitration Coalition” torecruit other credit card issuers into using mandatory arbitration clauses. Over the next four years, the Arbitration Coalition held more meetings, shared plans for the adoption of arbitration clauses, and spun off additional working groups.

Ultimately, “Defendants jointly forced unwilling and unaware cardholders to accept arbitration clauses and class action prohibitions on a ‘take-it-or-leave-it basis’ through the joint exercise of immense market power.”
The harms claimed by the cardholders, which lie at the heart of their Complaint, are injuries to the market from the banks’ alleged collusion to impose a mandatory term in cardholder agreements, not injuries to any individual cardholder from the possible invocation of an arbitration clause. The antitrust harms set forth in the Complaint – for example, the reduction in choice for consumers, many of whom might well prefer a credit card that allowed for more methods of dispute resolution – constitute present market effects that stem directly from the alleged collusion and are distinct from the issue of whether any cardholder’s mandatory
arbitration clause is ever invoked. The reduction in choice and diminished quality of credit services to which the cardholders claim they have been subjected are present anti-competitive effects that constitute Article III injury in fact.

...

We believe that at least in these two independent respects the cardholders have alleged an illegal conspiracy that resulted in a present injury by requiring them to accept less valuable cards than would otherwise have been available, but for the illegal collusion.