Credit unions skip credit-card arbitration rule

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Our July/August 2013 issue reported on the forced arbitration clauses that Charles Schwab attempted to impose on its brokerage customers. Consumer Financial Protection Bureau says a similar problem exists in the credit-card industry.

A CFPB study that was released in December 2013 found that, although this practice has diminished since 2010, “just over 50 percent” of all credit cards still are subject to arbitration clauses, which bind consumers to an arbitrator’s decision when a dispute arises. Arbitration clauses, says Rachel Weintraub of Consumer Federation of America, mean that companies are immune from accountability and have no incentive to improve their products or services. She points to research by watchdog group Public Citizen that shows that individual consumers lost 94 percent of arbitration cases.

You can learn whether your credit card has an arbitration clause by reading your cardholder agreement, although you might have to search for the word “arbitration.” (Not all agreements are structured the same way.) You also can look at CFPB’s database of credit-card agreements (consumerfinance.gov/credit-cards/agreements/).

Credit cards that are branded by a credit union are your best bet to avoid an arbitration clause in your credit-card contract, CFPB says. Only 3.3 percent of credit unions have arbitration clauses in their credit-card agreements, the agency found. Thirteen of the 20 largest bank issuers use such clauses, however.

To learn the results of our comprehensive evaluation of today’s credit-card offers, see "The Best Credit-Card Offers: How They Stack Up."