Bank of America Unit Settles San Francisco Arbitration Suit for $5 Million

Bank of America Corp. (BAC)’s credit card unit agreed to pay $5 million and suspend arbitrations of consumer debt collections in California for two years to settle San Francisco’s lawsuit over its collection practices.

The agreement, filed today in state court in San Francisco, resolved a 2008 lawsuit alleging that Bank of America’s FIA Card Services unit used an arbitration service that was biased in favor of the bank and against consumers. The National Arbitration Forum Inc., based in Minneapolis, employed unfair business practices while administering arbitrations for consumer who owed credit-card debt to the unit, according to the lawsuit.

FIA agreed not to use the mediation service in arbitrations for five years or enforce unconfirmed arbitration awards obtained through the company, said San Francisco City Attorney Dennis Herrera in an e-mailed statement. FIA is prohibited from barring consumers from suing the company as a group, according to the statement.

“Both sides agreed to the settlement to avoid the costs and uncertainty of further legal action,” Shirley Norton, a Bank of America spokeswoman, said in an e-mail.

Bank of America denies any wrongdoing, Norton said. The Charlotte, North Carolina-based company discontinued mandatory arbitration for consumer credit card disputes in August 2009 and hasn’t used National Arbitration Forum since then, she said.

The bank, the largest U.S. lender, also eliminated mandatory arbitration and requirements barring group lawsuits from consumer and small business credit card agreements, Norton said.

Mark Fellows, a spokesman for National Arbitration Forum, didn’t immediately return a voice-mail message seeking comment.

The case is People of State of California v. National Arbitration Forum, 473569, California Superior Court, County of San Francisco.

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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