Supreme Court's arbitration ruling puts consumers on notice

Fri Jun 21, 2013 11:38am EDT

American Express and MasterCard credit cards are shown in Washington June 25, 2008. REUTERS/Jim Bourg

American Express and MasterCard credit cards are shown in Washington June 25, 2008.

Credit: Reuters/Jim Bourg

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(Reuters) - Just about anyone who has a credit card, bank account or a relationship with a financial services company is likely to have agreed to settle a dispute through arbitration and forfeit the right to sue.

The legality of that practice was buttressed by the U.S. Supreme Court on Thursday when it delivered yet another blow to class action lawsuits by ruling in favor of an arbitration agreement that prevents merchants from banding together to make antitrust claims against American Express Co.

The pro-consumer group Public Citizen called the decision a "stinging blow to consumers, employees and small businesses injured by corporate wrongdoing."

Here are answers to key questions about the decision and what it means for consumers.

Q. What is arbitration and how does it differ from a lawsuit?

A. Arbitration puts a case before an arbitrator - usually an attorney - instead of a judge or jury. An arbitrator's ruling is binding and can be enforced.

Businesses prefer arbitration because the process tends to be more efficient, is usually conducted in private and the amount of money that can be awarded tends to be more limited. Costs also tend to be lower in arbitration than in courtroom litigation.

Q. How do I know if a company I want to do business with is asking me to agree to such terms?

A. Typically, the language is part of standard contract language, but you'll have to look hard for it. "All these things tend to be in fine print - they tend to be in multi-page terms and conditions," says Edgar Dworsky, a consumer attorney who operates the website ConsumerWorld.org.

Q. What does it mean to me if a company I'm doing business with has such a clause?

A. If you believe the company has cost you money or otherwise harmed you, filing a lawsuit will not be an option.

"You won't be able to be in a class action in court," says Alan S. Kaplinsky, who chairs the Consumer Financial Services practice at the Philadelphia-based law firm Ballard Spahr LLP. "You'll either have to resolve your case informally with the company, or you'll have to go to arbitration."

Q. Can I complain anywhere else about my issue with a company?

A. Yes, the clause only prevents you from filing a lawsuit. It does not preclude you from filing a complaint with a government agency, the Better Business Bureau or from airing a grievance on social media.

Q. Can I opt out of an arbitration requirement?

A. Companies often offer their customers the option to reject the arbitration clauses and retain the right to sue, says Kaplinsky, an early proponent of having business clients use such clauses. Typically, a business that offers such an opt-out, gives a consumer 45 to 60 days to make that choice.

Q. Should I opt out given the choice?

A. Absolutely, says Dworsky, but it isn't always obvious that you'll have the choice or it will be simple to do.

"Whenever you have these opt-out clauses, (arbitration) is there automatically, unless you speak up, and most people don't," he says.

In many cases, Dworsky says, all the competing companies in a particular field will have these clauses, and there won't be an opportunity to opt out.

"It's just unfair to consumers," he says. "The trouble is they have you over a barrel."

(Follow us @ReutersMoney or here Editing by Lauren Young)

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