From the March 2006 Idaho Observer:

Our banks’ dirty little secret

"Credit" may well be the undoing of this nation. It is because of credit that the machines of government are able to grow beyond their desire to serve the people and into machines that abuse people. Whenever we interact with a bank, we must keep in mind that it exists as a statutory servant to the government master.

by George Mason

National banks are corporations of limited power having no powers except those expressly or by implication resulting through acts passed by Congress. Under the National Banking Act, a bank has the power to exercise all incidental powers necessary to carry out the business of banking provided they are essential to that express power. Historically, banks have tried to expand their powers by claiming there are incidental powers that are necessary in their bank’s operation.

Back in the 1960s the banks started issuing credit cards while making the claim that it was an incidental power. By carefully reading the National Banking Act, one finds there is no power that provides for the lending of credit. In federal law, it is well settled that a national bank has no power to lend its credit to another by becoming a surety except when that bank must save itself from imminent loss under a lawful contract.

As the scheme expanded, the Comptroller of the Currency and the Federal Reserve Board issued regulations that "recognize" the different banks’ credit cards. Federal courts for over 100 years have upheld that a bank cannot become a surety for anyone. The key is to understand the difference between what a loan and a surety is. The bank has all the authority to make a loan for a fixed amount, with fixed interest, a fixed payment and, in most cases, secured by something of value. A surety is where you are given a line of credit for any given amount with no fixed payment amount allowing you to choose the amount to be repaid that month and is not secured by any asset.

This scheme does not end with allowing the bank to extend to you credit while acting as a surety because the bank and you has to enter into a card agreement that allows for arbitration. Arbitration is a private legal process under the right of contract that is similar to the legal process but you do not have to appear in court. Arbitration comes to us via international treaty and is codified in Title 9 of the U.S. Code and each state has a separate section of law recognizing it.

The bank will never tell anything about the arbitration company other than you have to use their forum(s) list in the card agreement. The dirty secret is that these arbitration companies are biased against you in that they rule in favor of the banks 99.8 percent of the time. So here you are have waived your rights to a jury trial, waived your right to a court proceeding and have placed yourself in a forum in which the bank wins 99 percent of its cases. These arbitration companies openly seek banks as their clients while boldly guaranteeing them this success rate.

As if the above is not enough, most card agreements state that they are governed by the laws of Delaware. The reason is that Delaware’s arbitration laws provide that an attorney (the arbitration company) be granted up to 20 percent of the unpaid balance plus costs when their client, the bank, wins its case. After they win in arbitration, they will usually come into a state court and have that arbitration award confirmed as a judgment and add those costs as well. It is no wonder that the banks want to keep their clients in the dark. And these injustices will keep on happening until Congress steps in and addresses this enormous problem.