More Credit Card Issuers to Drop Mandatory Arbitration

In the new year, a fast growing number of credit card holders won’t have to settle disputes over their charges through mandatory arbitration, a long-standing process that critics and lawmakers contend nearly always favor the card companies.

Capital One became the third major credit card issuer to agree to leave out binding arbitration clauses in new consumer credit agreements next month, following the same decisions by JPMorgan Chase, the largest general-purpose credit card provider, and Bank of America.

All three made the decision as part of their settlement agreements in a class-action lawsuit brought on behalf of card holders in federal court in New York City. The lawsuit alleges that major banks conspired to require their card customers to resolve disputes in arbitration.

There are four remaining defendants in the lawsuit: Citibank, Discover, HSBC and the National Arbitration Forum.

However, Rep. Dennis Kucinich, D-Ohio, said in a statement that PNC Bank, TD Bank and Regions Bank, although not involved in the suit, have agreed “not have arbitration clauses in their new credit card agreements.”

“For the first time in years, you can choose what credit card to use by considering all its terms—interest rate, minimum payment, fees, rewards, and whether it requires you to give up your right to use the courts that our state and federal Constitutions have created for you,” Kucinich said.

In July, the House Domestic Policy Subcommittee, which Kucinich chairs, held a hearing on mandatory arbitration. He said the results of the hearing showed that a case’s outcome depends more on the assigned arbitrator than on the facts or the law that applies.

Consumer groups have criticized arbitration for years, asserting that it is heavily tilted in favor of banks. They also say that many consumers are unaware that their agreements typically include a waiver of a card holder’s right to sue.

Banks have argued that arbitration is less costly for all sides, and that their legal costs would, in turn, be passed to card holders if cases go to court.