Can My Credit Card Company Sue Me?

A commenter on our blog said he’d heard of a creative way to get rid of a lawsuit from a credit card issuer. “Doug” said lawyers he know have told him that suing a customer is a violation of the issuer’s arbitration clause that comes standard in nearly ever cardholder agreement out there. Here’s what he had to say:

If a debt collector sues one for a credit card balance, I can tell you most likely the debt collector has violated the terms and conditions of the credit card agreement. Today most terms and conditions contain an arbitration clause. The wording will state in effect that we the creditor and you the credit cardholder agree to settle any dispute through arbitration. If one is ever sued over a credit card debt, my attorney friends have advised me a defense for most cardholders to the action is the arbitration clause contained in the terms and conditions.

We checked with consumer law attorney Troy Doucet, and the news for Doug wasn’t good. The agreement normally states that the customer agrees to a playing field that is far from level.

“Usually the arbitration agreements are one-directional,” Doucet said. “That is, they let the card company use the court system to sue the consumer to recover for a default, but require the consumer use the arbitration process. However, some arbitration agreements allow the consumer to sue in court so long as it is just in small claims court.”

So it’s definitely possible for a creditor to successfully sue you for a credit card debt, and a judgment can damage your credit scores even more than a collections account, and thus make it harder to qualify for credit if you should need it. Conversely, consistently paying bills as agreed can help build or rebuild your credit. You can see how your payment history and other factors are affecting your credit standing by getting your free credit report summary, updated every 14 days, on Credit.com.

However, Doug’s idea is not without merit, and Doucet said he has successfully used arbitration clauses to fight cellphone fees. “Most arbitration clauses state that the phone company will pay for the filing fee if the consumer initiates arbitration (they say this to avoid a challenge to the clause in court that it is unconscionable),” he said in an email. “In those instances, I have demanded an arbitration hearing about the dispute, but rather than initiate one, which would require the filing fee be paid, the company folds and pays the demand.”

Overall, though, arbitration clauses are anything but consumer-friendly, Doucet said, and he supports a federal law prohibiting them in consumer contracts.