Arbitration

Disputes arising between credit card issuers and customers, or with clients holding merchant accounts, may be settled through a streamlined mediation process known as arbitration. A neutral third-party arbitrator is hired to hear arguments and consider evidence from both sides, and issue a decision that is binding on all parties. Similar to a court judgment, the decision of an arbitrator can be used as legal authority to request garnishment or levies to pay past-due balances, or file liens on property to satisfy monetary claims.

Credit card processing is often subject to errors, delays or misunderstandings between the issuers and the merchants who rely on credit cards for a good percentage of their business. By arbitrating disputes, customers, issuers and merchants save the considerable time and complications of going through a civil process, such as a small claims lawsuit. The savings involved in arbitration has convinced many credit card issuers to insert language in their customer and merchant agreements requiring the process if any claim or dispute arises.

In recent years credit card issuers have turned to the American Arbitration Association and JAMS, formerly Judicial Arbitration and Mediation Services, to handle arbitration cases. These two groups are seen as generally more consumer friendly than other firms that may require a “loser” in the case to pay the various fees attached to the arbitration process. These include filing fees, hearing fees, and fees charged by attorney-representatives.

A credit card issuer may allow exceptions to the requirement that parties to a dispute must accept the decision of an arbitrator. Customer or merchant accounts that are in default or in the collections process, for example, may still be the subject of a civil court action. In addition, disputes over amounts within the small-claims limit in the customer or merchant’s jurisdiction may also avoid arbitration–since the fees and time involved may be comparable to those of a civil court.

The roster of companies that require arbitration is subject to change. While Chase and Bank of America once required it, they later dropped the requirement; other issuers have added “opt-out” provisions if the customer or merchant requests the waiving of the requirement after opening a new account. An issuer may also require arbitration from cardholders but not from merchant accounts, or vice versa. It’s wise to examine an agreement with the credit card issuer to verify the current standing of the company with regard to arbitration.