WASHINGTON (12/3/12)--Big banks are forcing consumers to use arbitration in account disputes instead of taking a dispute to court, according to a new report by Washington, D.C.-based Pew Charitable Trusts. Credit unions surveyed did not do this.
The report, "Banking on Arbitration: Big Banks, Consumers, and Checking Account Dispute Resolution," examined the 100 largest financial institutions' resolution clauses-- including 92 checking account agreements for 85 banks and seven credit unions.
The study focused only on what was disclosed in the agreements, not additional rules and procedures required by private arbitration agreements. It also surveyed 603 consumers about their attitudes toward mandatory arbitration in checking accounts.
Of the 92 large financial institutions studied, 64% restricted dispute resolutions and 43% contained mandatory binding arbitration clauses. The percentage increases to 47% when considering only banks. None of the large credit unions studied include an arbitration clause in their account agreements, the report said.
The banks also banned class-action lawsuits, required waiving rights to a jury trial, restricted damages and shortened statutes of limitations on consumers' actions in potential disputes.
Of the checking account holders surveyed, more than two thirds said they should have a choice between taking a dispute to arbitration or to court, and 94% said that if arbitration is required, they should have a say-so on who arbitrates the dispute. However, most consumers also said arbitration can protect against frivolous lawsuits.
"A checking account is the most widely used financial product in the U.S., and many bank customers become bound by a mandatory arbitration agreement when they open their account," said Susan Weinstock, Pew's project director. "We found that most consumers were not aware that their right to go to court is often limited if they have a dispute with their bank."
Of consumers surveyed, 57% did not know or could not remember whether their agreements included mandatory arbitration.
- The larger the financial institution, the more likely an account agreement will require mandatory binding arbitration. Over half of the 50 largest financial institutions surveyed have such clauses, while 30% of the next 50 institutions contain the clauses.
- Seventy-five percent of banks with arbitration clauses also include a ban on class action lawsuits.
- More than half of the account agreements contained clauses where consumers waived the rights to a jury trial.
- Roughly two-thirds of the agreements do not require the arbitrator to have a law degree.
- Nearly nine in 10 of consumers surveyed disapprove of the procedural components of arbitration. Many found these features unacceptable: ongoing relationships between arbitration companies and financial institutions; the limited opportunity to appeal an arbitrator's decision; and the requirement that the consumer pay the bank's legal fees regardless of the outcome of the dispute.
- Despite overwhelming dissatisfaction with the arbitration process, half supported the overall goal of arbitration: to be a simpler, less costly alternative to court.
Credit unions in the survey were:
- Navy FCU, Vienna, Va.;
- State Employees' CU, Raleigh, N.C.;
- Pentagon FCU, Alexandria, Va.;
- Boeing Federal (BECU), Tukwila, Wash.;
- Schools First CU, Santa Ana, Calif.;
- Alliant FCU, Dubuque, Iowa; and
- The Golden 1 CU, Sacramento, Calif.
For the full report, use the link.