Class Action Against Credit Card Companies Conspiring To Make Us All Accept Mandatory Arbitration Revived

Ross vs Bank of America is a class action suit against a pile of banks alleging that they conspired to make all consumers accept mandatory binding arbitration clauses. It got a boost on Friday when the Second Circuit remanded it back to lower courts for further consideration (read the 15 page decision here). The previous court had dismissed the case because it felt plaintiffs couldn’t prove actual injury. The Second Circuit reversed, saying, “A card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” What did these banks do that was so bad? The plaintiffs claim a broad conspiracy between all the credit card players to institute mandatory arbitration agreements and kill off all non-arbitration agreement cards on the market, a gross violation of antitrust laws. Here’s the breakdown:

[b]eginning before late 1998 or early 1999, Defendants began communicating with each other and their co conspirators concerning the imposition and use of mandatory arbitration clauses.” After preliminary meetings and communications, the banks formed an “Arbitration Coalition” to recruit other credit card issuers into using mandatory arbitration clauses. Over the next four years, the Arbitration Coalition held more meetings, shared plans for the adoption of arbitration clauses, and spun off additional working groups. Ultimately, “Defendants jointly forced unwilling and unaware cardholders to accept arbitration clauses and class action prohibitions on a ‘take-it-or-leave-it basis’ through the joint exercise of immense market power.”

The cardholders argue that the banks’ collusion violated the antitrust laws. According to Plaintiffs-Appellants, the banks conspired in order “to immunize themselves from economic responsibility for antitrust and consumer protection violations, and to reap supra-competitive profits from their cardholders.” The cardholders also contend that the alleged collusion produced several market effects, including the creation of a “non-price trade advantage over cardholders” and the removal of any economic incentive for the banks to comply with antitrust and other laws, thereby shifting the risk and cost of their non-compliance to cardholders. The collusion is also alleged to have resulted in an increase in dispute related costs to individual cardholders (including monitoring the banks’ conduct and seeking relief through costly individual arbitrations), the removal of all non-arbitration credit cards from the market, thereby depriving the cardholders of meaningful choice in the area of credit card services, and a diminution in the overall quality of credit services offered to consumers.

The Complaint sets forth two antitrust claims against the banks. The first claim alleges a conspiracy to impose mandatory arbitration clauses in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The second claim alleges that the banks participated in a group boycott by refusing to issue cards to individuals who did not agree to arbitration, also in violation of Section 1

Docket No. 06-4755-cv