The credit card industry has really been running wild lately. After a frenzy of acquisitions and consolidation in the last several decades, only a few major banks issue the vast majority of credit cards in the United States, and the industry has been able to get more and more Americans to take out heavier and heavier debt loads. Today, America’s credit card debt load is approaching one trillion dollars (with millions of families having ten or more cards and more than $10,000 in outstanding debts), and the industry has continually raised both interest rates and punitive late fees, over-limit fees, etc. The industry’s profits have jumped 30% more since Congress adopted the "Bankruptcy Reform Act" three years ago that makes it harder for consumers who have fallen on hard times (very often due to medical debts stemming from an illness) to get a new start and become freed from their credit card debts.

As millions of Americans know all too well, the credit card industry has jacked up its profits through a wide variety of ugly, deceptive shenanigans. People sign up for cards because of low "teaser" rates, which are nearly always rapidly raised afterwards without any real justification; cards are heavily marketed to people (such as kids just arriving at college) who predictably are going to fall deeply into debt; games are played with when payments are considered "received" so that unfair late fees can be charged; and consumers are gouged in a host of similar ways.

These abuses have thrived because no one has been protecting consumers. The federal regulatory agencies have largely viewed their role almost exclusively in terms of protecting the profit margins of the credit card issuing banks (the agencies euphemistically prefer to call this focus the protection of the banks’ "safety and soundness"), and have fought jealously to block state regulators from doing anything to protect consumers.

Consumers have only rarely been able to get relief through consumer protection lawsuits, because too many courts have permitted banks to hide even the most egregious, deceptive and predatory practices behind the twin shields of (a) mandatory arbitration clauses that ban class actions and funnel cases into an industry-friendly arbitration company that nearly always rules for the banks; and (b) sweeping federal "preemption" of state laws that might protect consumers.

Finally, the Federal Reserve has taken notice, and has proposed rules that would outlaw a few of the most egregious abuses by credit card companies. Until detailed regulations are issued, the meaningfulness of these reforms is yet to be seen (federal agencies often engage in their own version of "bait and switch" by making vague promises to end abuses but then drafting rules whose fine print lets the cheating continue). But one thing is clear – the reforms will only apply prospectively, at best. Because the civil justice system has been so crippled with respect to credit card issuers, nearly all of the money already taken from consumers through deceptive and sharp practices will remain in the companies’ pockets.

The Fed wants the headline to be "Fed Solves Consumers’ Problems." The real headline is a little different: "Fed Promises to Finally Start Taking the First Halting Steps to Slow Down Consumer Rip Offs; Nation Waits to See If Promise Will Actually Be Kept."

To people who’ve been paying attention (which is not, unfortunately, most of the American public), it’s not exactly news that Corporate America has been exempting itself from most of the United States civil legal system. Most consumer business-to-contracts and a growing number of employment contracts contain terms that provide that if the individual has a dispute against a corporation, they cannot bring a lawsuit in court, but instead they have to take their dispute to a private arbitrator who is picked by an arbitration company that is (in turn) picked by the corporation who wrote the standard contract. For years, consumer and civil rights advocates have questioned a system where the judges are essentially picked by one side to a dispute.

We shouldn’t worry, the U.S. Supreme Court and some corporate advocates have essentially responded, because if the arbitrator does something unfair, courts will review their decisions. In the real world, this is a truly empty promise, because courts will not overturn an arbitrator’s decision except in the most narrow and rare of circumstances. One federal court of appeals recently held that arbitrators’ decisions may not be overturned even when their legal reasoning is "wacky," and another federal court of appeals held that arbitrators’ decisions can’t be overturned even if they include "gross errors" of legal reasoning. The Supreme Court itself has held that arbitrators’ decisions can’t be overturned even when their findings of fact are "silly." President Reagan famously said "Trust, but verify." Well, the Supreme Court and corporate advocates may tell us we can trust that corporate-selected arbitrators will be fair, but the courts have made sure that no one will actually verify that they follow the law.

While corporations have generally been happy enough to have their hand-picked arbitrators decide disputes between corporations and consumers without any meaningful review, some corporations have wanted a little more of a law-abiding system for business-to-business arbitrations. Accordingly, a few businesses have started negotiating contracts that provide for arbitration of commercial disputes, but have also provided that any decision by the arbitrator should be reviewed on appeal to court just as freely and seriously as if it were a decision by a court.

On March 25, 2008, in Hall Street Associates v. Mattell, the Supreme Court held that private parties can’t re-write the Federal Arbitration Act ("FAA") to provide for meaningful review, just because they want the arbitrators to be held to the law. Writing for the majority in a 6-3 decision, Justice Souter pointed out that the FAA clearly provides for an incredibly narrow type of judicial review, and that parties can’t just go around re-writing federal statutes just because they don’t like them.

While Justice Souter’s decision is a lawyerly and fair reading of the plain language of the statute, it remains to be seen whether Corporate America will be willing to subject themselves to the same lawless system that it likes to impose upon its consumers and employees. There have already been a rash of stories in the business press about how various corporations have been abandoning pre-dispute binding arbitration for their own business-to-business disputes, and the betting here is that the Hall Street Associates case will accelerate this trend.

Nearly 25 years ago, the first brief that Public Justice (then Trial Lawyers for Public Justice) filed in the U.S. Supreme Court opposed federal preemption of an injury victim's claim. It urged the Supreme Court to hold that Karen Silkwood could seek punitive damages against the Kerr-McGee Corporation for contaminating her with plutonium even though the company had complied with the federal government's regulations governing the safety of nuclear power plants. The Supreme Court agreed, 5 to 4.

Since that time, Public Justice's Federal Preemption Project has preserved the rights of millions of Americans to hold corporate wrongdoers accountable for the injuries. Among other victories, we won a unanimous United States Supreme Court ruling upholding an injury victim's right to sue a manufacturer for failing to install propeller guards on its recreational motor boat engines. We have also fought preemption for years in cases involving medical devices, prescription drugs, motor vehicle safety, flammable fabrics, and mandatory arbitration, to name but a few.

Despite these victories, companies seeking to avoid responsibility for their conduct are advancing the federal preemption defense with more vigor than ever. Worse yet, a new spate of Supreme Court cases underscores the huge threat posed by federal preemption - and the importance of fighting it with every means at our disposal. Just this term, the Supreme Court shocked the legal world by granting review in four cases involving federal preemption of consumer products.

The first of these cases - Riegel v. Medtronic, which involves defective medical devices that have received "pre-market" approval from the federal FDA - has already been decided adversely to the plaintiffs. The second case -- Warner-Lambert v. Kent -- was just decided in a 4-to-4 ruling that left undisturbed the decision below, which upheld a provision of  Michigan statute that all drug companies to be sued in cases where they committed fraud on the FDA in obtaining the drug's approval. The remaining two cases -- Altria v. Good and Wyeth v. Levine -- could have an dramatic impact on the ability of victims of inadequately labeled prescription drugs and so-called "light" cigarettes to seek compensation for their injuries. Public Justice filed amicus curiae briefs in all four cases, urging the Court to reject the unwarranted and overbroad preemption arguments that are being advanced by corporate America. Altria and Wyeth should be decided by year's end. 

This is a battle that we have already joined, and we believe that it is of utmost importance that we continue to fight for the right outcome. Look for our briefs in Riegel v. Medtronic, Wyeth v. Levine, Warner-Lambert v. Kent, and Altria v. Good on our website, http://www.publicjustice.net/.