Most Banks Limit Consumer Options
The Pew Center on the States released a report examining the 100 largest financial institutions’ dispute resolution clauses for checking accounts. Of the account agreements reviewed, Pew found that 64 percent restricted dispute resolutions in one or more of the following ways: mandatory arbitration, class action bans, jury trial waivers, restrictions on damages, and shortened statutes of limitation.
Mandatory arbitration clauses effectively prevent consumers from going to court, instead requiring them to submit disputes to an arbitrator– a third party decision maker. Only 25% of banks allow consumers to opt out of this process.
Other findings:
“The larger the financial institution, the more likely that an account agreement will require mandatory binding arbitration. Over half of the 50 largest financial institutions have arbitration clauses in their account agreements, while only 30 percent of the next fifty financial institutions contain such clauses.
Seventy-five percent of banks with an arbitration clause also included a ban on class action lawsuits.
Over half of the account agreements contain clauses whereby the consumer waives the right to a jury trial.
About two-thirds of agreements do not require that the arbitrator have a law degree.
Banks also restrict dispute resolution through jury trial waivers and limited liability provisions.
Almost nine in ten consumers disapprove of the procedural components of arbitration. For instance, consumers find the following features unacceptable:
the ongoing relationships between the 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 of consumers support the overall goal of arbitration – to be a simpler, less costly alternative to court.
Over two-thirds of consumers believe they should have a choice between taking their dispute to arbitration and taking it to court.
An overwhelming majority of consumers believe that if they were required to go to arbitration, the arbitrator should not be chosen solely by the bank, but by both parties involved in the dispute. ”
The full report can be viewed here, on the Pew Charitable Trusts website.