Chase Drops Mandatory Arbitration Clause
Consumers scored a major victory on Friday asJPMorgan Chase, the nation's largest credit card lender, announced it will drop a mandatory arbitration clause from its credit card contracts. The announcement was made with an eye toward settling a class action lawsuit targeting Chase and several other major financial institutions.
The class action, filed by Berger & Montague PC of Philadelphia, also names Bank of America, Citigroup, Discover, and Capital One as defendants. The suit accuses the defendants of having “secretly met or consulted on some 30 occasions for the purpose of requiring their cardholders to arbitrate all disputes.”
Chase agreed to drop the arbitration requirement for at least three and a half years, starting next year, although it appears the lender has already gotten a head start. Before news of the settlement broke, a spokesman said via an e-mail that the bank stopped using arbitrators in July. Chase also promised not to replace the clause with a class-action waiver or other restrictions on consumers' remedial options.
It has been a good year for consumers on the arbitration front. In March, the Supreme Court held that credit card holders are not always bound by arbitration agreements, overruling the Fourth Circuit.
Bank of America announced in August that it was no longer requiring arbitration for disputes relating to a range of products, including credit cards, car loans, and deposit accounts. BofA, the nation's largest bank, was the first to abandon the arbitration-only policy.
What does it mean for consumers? Those who have a dispute or disagreement with Chase are now able to file suit in court, where their chances of success – or at least a fair hearing – are infinitely better. The arbitration forums used by credit card companies are notoriously tilted in banks' favor. A 2007 Public Citizen study found that consumers lost fully 95 percent of cases decided in a California arbitration forum.
State attorneys general and other law enforcement officials have been cracking the whip as well, often with great success. The National Arbitration Forum went so far as to halt all consumer arbitration disputes as part of an agreement with Minnesota Attorney General Lori Swanson. The American Arbitration Association similarly said it would suspend arbitration proceedings until new fairness standards were in place.
Next year may prove even more brutal for credit card companies; they become subject to new regulations on rates and fees in February, when the Credit Card Accountability Responsibility and Disclosure (CARD) Act goes into effect.
The settlement between Chase and the plaintiffs now awaits final approval from the court. As part of the agreement, the plaintiffs agree to relieve Chase of any liability stemming from the arbitration clause itself, but reserve their right to litigate claims that were originally slated for, or heard in, arbitration forums.
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