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Big Banks More Likely to Impose Arbitration on Checking

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Big Banks More Likely to Impose Arbitration on Checking
JPMorgan Chase & Co. at a bank branch in New York. More than half -- 56 percent -- of the 50 largest banks by domestic deposits, including JPMorgan Chase & Co. require checking account holders to submit disagreements to arbitration. Photographer: Scott Eells/Bloomberg

Nov. 28 (Bloomberg) -- Large banks are more likely to force checking-account customers to forgo their right to sue over a dispute, according to a new study by the Pew Charitable Trusts.

More than half -- 56 percent -- of the 50 largest banks by domestic deposits, including JPMorgan Chase & Co. and Wells Fargo & Co., require checking account holders to submit disagreements to arbitration. Of the next group of 50 banks, 30 percent do so.

“The larger the financial institution, the more likely an account agreement will contain a clause requiring mandatory binding arbitration,” Pew wrote in the report released yesterday.

The study found that the top five U.S. banks -- JPMorgan, Wells Fargo, Bank of America Corp., Citigroup Inc. and U.S. Bancorp -- all include arbitration clauses in their checking account agreements, according to Cora Hume, one of the researchers. Bank of America uses a process known as “judicial reference,” which functions in a similar manner, Hume said.

Large banks use the strategy because “bigger institutions tend to get sued more,” Jean R. Sternlight, a professor at the University of Nevada-Las Vegas Boyd School of Law, said in an interview. “And they get more legal advice.”

Consumer advocates argue that mandatory arbitration, and the waivers on class-action lawsuits that often accompany them, limit aggrieved customers’ opportunities for redress. Nevertheless, courts have gradually turned aside challenges to their legality, leaving regulators to consider whether to restrict arbitration.

The U.S. Consumer Financial Protection Bureau is conducting a study on the use of arbitration. The study is mandated by the Dodd-Frank law of 2010 that created the bureau.

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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