The Supreme Court yesterday ruled that consumers can sometimes resist credit card companies’ push to move their dispute over finance charges and late fees to arbitration. The justices voted 5-4 Monday in favor of Betty Vaden in her dispute with Discover Bank.
Discover sued Vaden in Maryland state court in 2003, claiming she hadn’t paid more than $10,000 that she owed on her account. Vaden filed a class-action counterclaim, saying the company’s finance charges and late fees violated state law. Discover then moved for the federal court to force Vaden into arbitration over her claim.
But Justice Ruth Bader Ginsburg, writing for the majority, said state courts sometimes are the proper place for such lawsuits. “Here, the controversy between Discover and Vaden was triggered by Discover’s garden-variety, state-law debt-collection claim against Vaden,” Ginsburg said.
Many credit card customer service agreements require disagreements over charges to be resolved using binding arbitration because it is cheaper and faster than a lawsuit, a requirement typically buried in the very fine print. But a study by the Public Citizen consumer advocacy group found that arbitrators often rule in favor of the credit card companies.
In the Discover case, the issue was whether a federal court could step into what had been a state court lawsuit to order the parties into arbitration. This is the second surprise victory for consumers in recent weeks, following the Supreme Court decision in Wyeth to not allow preemption of state tort laws for claims against pharmaceutical companies.