As Limitations of Consumer Protection Laws Come to Light, Chicago Bankruptcy May Offer Solution
A new court ruling raises doubts that hard-fought consumer protection laws will actually be able to protect consumers.
Earlier this month, the Supreme Court ruled that consumers who signed up for a credit card with a binding arbitration clause don't have the right to dispute creditors in court over unfair fees or charges. Instead, they must hire an independent (read: expensive) arbitrator.
Here's the kicker: many credit users don't even realize their card came with an arbitration clause because it was hidden among fine print in the credit card agreement. That's exactly the sort of sneaky behavior the formerly heralded Credit CARD Act of 2009 was supposed to prevent.
Critics say the 8-to-1 vote will only encourage credit card issuers and lenders to add even more clauses restricting consumers to arbitration down the road. Large credit card companies know that, when it comes to arbitration, consumers don't have much of a shot.
Chicago bankruptcy lawyers rarely hear of a credit card holder winning an arbitration case. This is probably because, as the top hirers of independent arbitrators, multi-billion-dollar credit card companies hold a lot of sway.
Data shows that in California, consumers won just 4 percent of cases between 2003 and early 2007, according to a story in SmartMoney. Credit card issuers won 94 percent of those cases.
When it comes to consumer protection, a Chicago bankruptcy is far more likely to help Illinois consumers than recent laws that are open to interpretation. Bankruptcy was created specifically with the intention of helping consumers plagued by years of credit card debt, medical bills, and other financial burdens.
Even if it's believed that a bank violated a provision of the Credit CARD Act, which was written to prevent random interest hikes and unfair fees, the arbitration clause would still take precedence. In addition, the ruling may restrict consumers from banding together in a class-action lawsuit because this would be considered going to court.
If you have a significant amount of credit card debt, a simple rate hike or the addition of a new fee could take paying the bills from difficult to impossible.
Most consumers don't realize they've been forced into binding mandatory arbitration. Do you hold a credit card from a major bank? There's a good chance your card came with an arbitration clause. To out if you're affected by the ruling, call your credit card issuer and request a copy of your most recent credit card agreement. You can usually find the clause in the dispute resolution section.
Most folks will never have to go to arbitration. But you increase your chances if you have a large, long-overdue balance - or if you become an unfortunate victim of identity theft.
By lowing debt, bankruptcy reduces the need for arbitration since credit issuers will be less likely to go after your debt and you'll be less likely to be adversely affected by a surprise interest rate hike.
When the pressure of debt is eliminated through a Chicago bankruptcy filing, you'll be out from under the thumb of creditors - and back in control of your own financial destiny.
More Blog Entries:
Bank Fees Take a Toll on Chicago Consumers Considering Bankruptcy: October 21, 2011
Banks Hound Mourners Over Chicago Debt After Loved Ones Die: November 3, 2011
A Setback for Credit-Card Users?, by Annamaria Andriotis, SmartMoney
Credit Card Arbitration: What It Is, How It Works, by Amy Buttell Crane, CreditCards.com