Consumers suffered a setback on Thursday as three big credit card issuers won the dismissal of U.S. lawsuits accusing them of colluding to require that disputes be settled in arbitration rather than class action lawsuits.
U.S. District Judge William Pauley in Manhattan said cardholders failed to show that American Express Co, Citigroup Inc and Discover Financial Services conspired to violate the Sherman antitrust law.
The plaintiffs had argued that the conspiracy ran from May 1999 to October 2003, when 10 card-issuing banks and their lawyers held 28 meetings to discuss how to impose mandatory arbitration clauses in cardholder agreements.
Pauley said his decision in the decade-old case was a close call, given the "conscious parallel action" among the biggest card issuers to include the clauses.
"It was only by a slender reed that plaintiffs failed to demonstrate that the lawyers who organized these meetings had spawned a Sherman Act conspiracy among their clients," Pauley wrote in a 92-page decision, following a 2013 non-jury trial.
Class action litigation can allow consumers to pool resources and obtain greater recoveries at lower cost than individual arbitrations.
"This is a big dent for consumer rights," said Curtis Arnold, a consumer advocate and founder of CardRatings.com in Little Rock, Arkansas. "Class action lawsuits have over the years kept this industry in check. Individuals don't have much recourse taking on card giants by themselves."
Cardholders had sought to force American Express, Citigroup and Discover to remove arbitration clauses from their cardholder agreements for eight years.
Merrill Davidoff, a partner at Berger & Montague representing the plaintiffs, said his clients were "obviously disappointed" and strongly disagreed with Pauley's decision. He said it is premature to address whether there will be an appeal.
Robert Sperling, a partner at Winston & Strawn representing Discover, said the cardholders "never came close to proving collusion." Citigroup spokeswoman Emily Collins said that the bank is pleased with the decision. Spokeswomen for American Express did not respond to requests for comment.
American Express, Citigroup and Discover collectively held about 31.1 percent of U.S. outstanding credit card balances in 2013, according to the Nilson Report.
AVOIDING A BACKLASH
In April 2010, Bank of America Corp, Capital One Financial Corp, HSBC Holdings Plc and JPMorgan Chase & Co settled with the plaintiff cardholders by agreeing to remove their arbitration clauses for 3-1/2 years.
The U.S. Consumer Financial Protection Bureau estimated in December that just over 50 percent of outstanding credit card loans remain subject to the clauses.