Chase drops arbitration from card contracts

AP News
Posted: Nov 20, 2009 5:10 PM

JPMorgan Chase & Co. said Friday it is dropping a clause from its credit card contracts that required disputes with customers to be handled through binding arbitration, a move that could lead to consumers filing class-action and other lawsuits.

A spokesman for the New York-based bank's Chase Card Services unit confirmed the change after a law firm that sued banks over arbitration clauses announced a tentative settlement with JPMorgan Chase.

Chase decided to stop sending credit-card disputes to arbitration in July, and now is removing the arbitration clause, spokesman Paul Hartwick said.

Banks say arbitration is less costly for everyone than lawsuits. They also argue that banks' increased legal costs would in turn be passed on to consumers. But consumer groups have criticized arbitration as tilted in favor of banks.

Hartwick said Chase believes its policy change "is the right thing for our customers and our business, and reflects our commitment to clearer and simpler communication with our customers."

Earlier Friday, the Philadelphia-based firm Berger & Montague announced in a news release that it had reached a tentative settlement with Chase partially resolving a four-year-old lawsuit in federal court in New York City. The complaint argued that Chase and other banks conspired to require their card customers to resolve disputes in arbitration, including debt collections.

Chase's policy change comes three months after another major card issuer, Bank of America Corp., said it would stop requiring that disputes with its card holders and banking and lending customers be settled through arbitration.

Many consumers are unaware that card agreements typically include a clause that waives a card holder's right to sue. Lenders instead use arbitration to go after delinquent accounts, and consumers can employ arbitrators to fight disputes with their banks.

The American Association for Justice _ formerly known as the Association of Trial Lawyers of America _ hailed Chase's move.

Consumers "previously had no recourse because of rigged forced arbitration proceedings," the group's president, Anthony Tarricone, said in a statement.

The Obama administration has proposed to ban arbitration clauses from credit card agreements as part of a wider push for consumer protections.

If a judge approves the settlement with JPMorgan Chase, the company's move to drop the arbitration clause from card contracts would be made formal in court.

Berger & Montague said the settlement would require the bank to drop the clause for at least three and a half years beginning in January. Chase also would "immediately cease enforcing its existing arbitration clauses against its cardholders," the law firm said.

Chase, which has denied all allegations of wrongdoing, would also agree not to conspire with other card companies on arbitration issues, according to the law firm. The settlement would not release claims against other banks that are defendants in the lawsuit, a class-action brought on behalf of cardholders.

Shares of Chase fell 9 cents to close at $42.46.