We have received reports of an uptick in lawsuit activity by Discover card suing over defaulted credit cards. In at least one case, the consumer was able to have the lawsuit thrown out of court by demanding arbitration based on the arbitration clause in the contract. As a rule, I am not fond of arbitration, but every rule has an exception, and there are cases where you can use an arbitration clause in your favor.

Typically, under consumer arbitration rules, the consumer has to pay a relatively small fee for arbitration, usually about $250, and the business has to pay the rest of the arbitration fee. That fee is usually at least $2,000 and can easily be double that.  Most of the cases provide that either party can take the case to small claims court in lieu of arbitration.  For this reason, where small claims court is available, credit card companies often file there, and the consumer may not be able to get the case into arbitration, because the business was allowed to file the small claims case. That being said, there are cases the business can’t file in small claims court — some small claims courts have jusrisdiction limited to small amounts, under $2000 for example, and the credit card balance may be much higher than that. Also sometimes credit card companies don’t take the case to small claims court for practical reason. Often small claims courts require a court date for an answer/deny appearance of the defendant that the creditor’s attorney is required to attend. Many credit card companies hire one law firm to handle multiple states and/or large geographic areas within a state, and it isn’t always practical for their attorney to personally cover these hearings. That’s why they often file a case they could file in small claims court in a general court, (circuit or superior court in Indiana), where they can require the defendant to file a written answer (which 98% don’t do) and obtain a default judgment if the defendant doesn’t answer.

In essence, by filing a motion for arbitration immediately upon being sued on a credit card, the consumer can force the creditor to pay several thousand dollars in arbitration costs with no guarantee that they will ever even recover that amount from the defendant. When faced with that situation, the creditor often dismisses the case.

WHY YOU SHOULD HIRE AN ATTORNEY TO DEMAND THE ARBITRATION

Although a consumer can demand arbitration without an attorney, in most cases, there are reasons why I think you should hire an attorney to do this for you. The first is, you might not technically file everything right. The second is you might be able to set up the case so that the credit card company and/or its attorney owes you money.

If you are in Indiana, call me at 317-662-4529 or email me at hoferlawindyATgmail.com. (Replace the AT with @ – I have to write it this way to dodge spammers.)   As always, if you are outside Indiana find a consumer lawyer in your area at www.consumeradvocates.org.