(CN) – Arbitration clauses in credit card contracts can be struck down as unconscionable under state law if they bar consumers from class arbitration, the 3rd Circuit ruled.
The federal appeals court in Philadelphia reinstated a lawsuit accusing American Express of misrepresenting the terms of its Blue Cash card rewards program.
The contract for the card included an arbitration clause that forced consumers to arbitrate any claims individually instead of as a class action.
Lead plaintiff G.R. Homa said the class-arbitration waiver illegally barred groups of consumers from collectively arbitrating claims that, decided individually, would yield only small awards.
American Express, who issued the card through its American Express Centurion Bank in Utah, argued that Utah law allows class-arbitration waivers in consumer credit agreements.
But Homa urged the court to apply the laws of his home state, New Jersey, which prohibit certain class-arbitration waivers.
The district court ruled for American Express, but the 3rd Circuit reversed.
Judge Van Antwerpen predicted that the New Jersey Supreme Court would find that New Jersey had a greater stake in the case than Utah and would apply New Jersey law.
In that vein, the court held that “if the claims at issue are of such a low value as to effectively preclude relief if decided individually, then … the application of Utah law to class-arbitration waiver is invalid and the class-arbitration waiver is unconscionable.”
Plaintiffs’ attorneys hailed the ruling as a major victory for consumers.