* American Express, Discover, Citigroup accused of collusion
* Credit card issuers deny allegations in lawsuit
* U.S. federal judge in NY hearing case without a jury
By Nate Raymond
NEW YORK, Jan 7 Three of the largest U.S. credit
card issuers headed to trial on Monday to defend accusations
that they colluded to force customers to agree to settle
disputes through arbitration rather than in class action
American Express Co, Discover Financial Services
and Citigroup Inc face the allegations in two
antitrust lawsuits filed by customers who had to sign
arbitration agreements in order to get credit cards.
U.S. District Judge William Pauley in Manhattan is hearing
the cases without a jury.
The trial follows a landmark U.S. Supreme Court decision in
2011. That case involved an AT&T Inc unit, and bolstered
corporations' ability to require customers to arbitrate disputes
over fees or other issues.
Arbitration puts more costs and burdens on individuals than
if they collectively pursued claims in class actions, consumer
No damages are being sought in the antitrust lawsuits, which
were filed in 2004 and 2005, and consolidated for trial before
Pauley in March.
Instead, the plaintiffs are asking the judge to order
American Express, Discover and Citigroup to remove arbitration
clauses from their cardholder agreements.
The plaintiffs also want an eight-year ban on arbitration
clauses by the trio, which had 31.4 percent of outstanding
credit card balances in 2011, according to The Nilson Report, a
payment card industry newsletter.
In the first day of testimony on Monday, lead plaintiff
Robert Ross from Pennsylvania said he did not view arbitration
as a "fair venue" for consumers.
"If the average consumer was aware of the costs they'd have
to bear in arbitration, they wouldn't do it," Ross said in
response to questioning by a lawyer for American Express, Rowan
Wilson of Cravath, Swaine & Moore.
Lawyers for the plaintiffs will present evidence that big
banks in 28 meetings from 1999 to 2003 discussed how to
institute mandatory arbitration clauses, court documents show.
Within three years, all the banks imposed almost identical
arbitration clauses that prevented cardholders from pursuing
class actions, the plaintiffs claim.
Citigroup, Discover and American Express assert that they
adopted the arbitration agreements independently.
They also contend that the plaintiffs have failed to show
that arbitration clauses curb competition or cause injury under
federal antitrust law.
"We include arbitration in our cardmember agreements because
we think that it is an important part of American Express's
overall approach to resolving any disputes with its cardmembers
quickly and efficiently," American Express representative Marina
Hoffmann Norville told Reuters.
Representatives for Discover and Citigroup declined to
Four other banks - JPMorgan Chase & Co, Bank of
America Corp, HSBC Holdings PLC and Capital One
Financial Corp - settled claims in one of the lawsuits
against them in 2010 by removing the arbitration clauses from
their cardholder agreements for 3-1/2 years.
Those banks also agreed to pay the plaintiffs' lawyers $2.35
million in fees and expenses.
Following those settlements, credit card loans outstanding
subject to arbitration clauses plunged from 95.1 percent at the
end of 2009 to 48 percent a year later, according to a paper
released in November by Peter Rutledge of University of Georgia
School of Law and Christopher Drahozal at University of Kansas
School of Law.
The settlements with the four banks are set to expire later
this year, allowing them to again mandate arbitration.
The cases in the U.S. District for the Southern District of
New York are Ross v. Bank of America, N.A., et al., 05-07116,
and Ross v. American Express Company, 04-5723.