A couple of weeks ago I talked about mandatory binding arbitration and the fact that this little-known clause was, in essence, a rewrite of consumer rights. Well, I’m happy to report there may be some consequences for the major banks and credit card companies imposing this clause including; Bank of America, Capital One, Chase Bank, and Citibank.

A federal court in New York allowed proceedings to begin on a lawsuit charging some of the nation’s largest banks with conspiring together to force credit card customers into arbitration. If you’ll recall, this meant that consumer’s were required to give up their right to a trial and their right to participate in class-action lawsuits, among other things. The attorney’s of the plaintiffs’ are claiming that the banks broke antitrust laws, which is grounds to immediately nullify the arbitration clause within each of their respective credit card contracts.

The lawyers discovered – while working on different cases, no less – that the banks had formed an “arbitration coalition” in which they had meet at least 18 times. These meetings were designed to hone in on the specific wording that would strip consumers of their rights and somehow make that legal. Furthermore, upon closer examination of each bank’s contract, the clauses were found to be “almost uniform,” according to Merrill Davidoff, lead counsel. The court overturned a lower courts decision dismissing the case by stating there was no grounds for a lawsuit because the evidence was “entirely speculative.”

But, before you get your hopes up and think that you may get some money out of this lawsuit – goodness knows we all probably deserve a little – the lawyers are only seeking an injunction, which means no money is on the line. However, this is a huge step towards victory for consumers because its preliminary results indicate that banks are going to have to face the music on these antitrust charges.

This new turn of events has put the brakes on the Arbitration Fairness Act of 2007 – a bid by consumer activists to squash binding arbitration. However, thanks to some clever lawyering, these contracts may become null and void. It will depend entirely on the ruling, but the possibility exists that consumers could still file class-action suits against the large companies seeking damages during the times they were unable to seek fair justice.

The case was reinstated as of Friday, April 25, 2008. There are still deliberations that will be taking place before the court comes to any specific decision; however, the fact that they are hearing the case means that lobbyists and advocates of consumer rights are making an impact in Washington. With the Cardholders’ Bill of Rights going before Congress and this case before a federal court, the credit card industry may be facing a huge change by year’s end.

Related posts:

1. Binding Arbitration: A Rewrite of Consumer Rights?
2. Credit Card Day of Reckoning This Thursday?
3. Are Banks Failing Their Customers?
4. An Arbitrator is Dismissed from the NAF for finding in favor of a Consumer
5. Banks vs. Credit Unions: Which is Better?