Congressman Cohen Chairs Subcommittee Hearing on Credit Card Arbitration Practices

The hearing featured the following witnesses: Michael D. Donovan, Esq., National Association of Consumer Advocates, Richard H. Frankel, Esq., Drexel University Earle Mack School of Law, Christopher R. Drahozal, Esq., University of Kansas School of Law and David Arkush, Esq., a consumer advocate.

“The use of arbitration has expanded from simply involving disputes between commercial parties to issues between consumers and businesses, employees and employers, and shareholders and corporations,” said Chairman Cohen. “As arbitration has increased in popularity, what was once a choice has become a mandatory part of consumer contracts. In fact, according to a 2004 survey, one-third of all our major consumer transactions are covered by mandatory arbitration clauses. And despite all of the benefits of arbitration, mandatory arbitration agreements may not always be in the best interests of consumers.”

Today’s hearing featured testimony about studies which analyzed arbitration decisions concerning credit card disputes and how those decisions impact credit cardholders. Members heard arguments in favor of the inclusion of arbitration clauses as well as testimony that claimed these clauses place an additional burden on cardholders, many of whom are barely keeping up with mortgage or rent payments, insurance premiums, and credit card bills.

The CAL Subcommittee recently held a hearing to examine whether the credit card industry’s practices are bankrupting Americans. Witnesses testified that excessive fees and interest rates, unilateral change-in-terms provisions, and changes in credit limits have exacerbated the burden borne by credit card debtors. The growing burden has pushed some debtors into bankruptcy. Just last week, Congress passed the Credit Cardholders’ Bill of Rights Act in an attempt to shield cardholders from some of the most outrageous practices of the credit card industry. Some of these practices have hindered some cardholders’ ability to weather this downturn.

After the hearing, Chairman Cohen indicated that he wished to continue exploring consumer arbitration agreements and plans to take a closer look at recently introduced arbitration legislation.

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