Private Dispute Resolution in the Card Context: Structure, Reputation, and Incentives

Abstract

Explosive growth in credit, debit, and other card payment systems in recent years has produced a parallel growth in private dispute resolution systems based on the web of contracts entered into by merchants, merchant acquirers, consumers, card issuers, card associations, and transaction processors. These contracts have produced a legal system based on contract and whose enforcement rests primarily on reputational constraints. To cost-effectively resolve disputes, these private legal systems have evolved innovative procedures, including incentive-payments for producing information, rigid deadlines for parties' actions, and the use of the lowest-possible level resources to resolve disputes. This paper describes and analyzes these legal systems and their procedures as a potential model for resolving other categories of disputes.

Keywords: Private Dispute Resolution, Private Legal Systems, Credit Cards, Debit Cards, High Cost, Lack of Speed, Due Process, Fairness, Payment System, Value Transfer Network, Chargebacks, Retrievals

JEL Classification: K10, K12, K29, K41