Big credit card issuers defeat collusion lawsuit

NEW YORK (Reuters) - 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 violated the Sherman antitrust law in adopting mandatory arbitration clauses in their cardholder agreements.

The plaintiffs had argued in the decade-old litigation 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.

Pauley said his decision was a close call, given his finding that there had been "conscious parallel action" among the biggest card issuers to adopt and maintain 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.

"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 disagree with the decision. He said it is premature to address whether there will be an appeal.

American Express, Citigroup and Discover did not immediately respond to requests for comment. They collectively had about 31.1 percent of U.S. outstanding credit card balances in 2013, according to the Nilson Report.

AVOIDING A BACKLASH

Class action litigation can allow consumers to pool resources and obtain greater recoveries at lower cost than individual arbitrations.

In 2010, Bank of America Corp , Capital One Financial Corp , HSBC Holdings Plc and JPMorgan Chase & Co settled antitrust litigation by agreeing to remove arbitration clauses from cardholder agreements 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. It said the percentage would have been 94 percent absent the earlier settlements.

In his decision, Pauley noted that of the 10 banks that had been part of the litigation, just two had mandatory arbitration clauses at the start of the alleged collusion.

He said cardholders presented "compelling evidence" that they would have little economic incentive to challenge alleged abuses absent class actions, and that banks' "need to parry consumer backlash and temper any 'rogue' players" established a motive to conspire.

"A motive to conspire, however, does not mean that a conspiracy existed," he said. "This court is convinced that the evidence is just as consistent with legitimate activity in furtherance of the issuing banks' independent self interests."

In 2011, the U.S. Supreme Court, in a case involving AT&T Inc , upheld contracts requiring consumers to arbitrate disputes individually.

The cases are in the U.S. District Court, Southern District of New York. They are Ross et al v. American Express Co, No. 04-05723; and Ross et al v. Bank of America NA et al, No. 05-07116.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Jonathan Oatis)

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