Bank of America ends arbitration of card disputes

Jonathan Stempel 3-4 minutes

NEW YORK (Reuters) - Bank of America Corp (BAC.N), the largest U.S. bank, said on Thursday it is dropping a requirement that forces consumers with disputes on credit cards and other accounts into an arbitration process, which critics say favors card issuers.

The new policy applies to credit card, auto, marine and recreational vehicle loans, as well as deposit accounts, and means unhappy consumers will be able to file lawsuits against the bank to address perceived unfair or illegal activity.

Bank of America is the first major U.S. bank to say it is curtailing arbitration in a wide array of consumer accounts.

"It is certainly significant," said Alan Kaplinsky, a partner and head of the consumer financial services practice at Ballard Spahr Andrews & Ingersoll LLP in Philadelphia. "Whether others follow is an open question. Other banks and companies have used arbitration for years and are happy with it."

The change comes as the Obama administration pushes for a new consumer finance protection agency and as card companies prepare for new limits on rates and fees that take effect next February.

Consumer advocates have faulted the arbitration process, saying it is biased in favor of companies and that consumers often do not realize they are waiving their right to sue when they accept services. Supporters of arbitration say the process can be faster and less costly than going to court.

"While the bank thinks arbitration is a very fair way to go, customers do not," Bank of America spokeswoman Shirley Norton said. "It is in everyone's best interest to change it. We're hoping we'll be able to resolve more disputes directly with our customers."

Norton said the bank will review consumer cases already in arbitration on a case-by-case basis.

Bank of America's change follows announcements last month by two major arbitration firms that they would stop accepting new cases.

The American Arbitration Association said it would halt consumer debt collection arbitrations until new fairness standards were established.

The National Arbitration Forum agreed to cease consumer arbitration disputes as part of a settlement with Minnesota Attorney General Lori Swanson.

She had accused the firm in a lawsuit of deceiving consumers about its impartiality and instead working closely with card companies and other creditors to insure it would handle more arbitrations. The National Arbitration Forum has estimated that lenders prevail over consumers in 94 percent of debt collection arbitrations.It was not immediately clear whether other major card issuers would follow Bank of America's decision.

American Express Co (AXP.N) and JPMorgan Chase & Co (JPM.N) said they are evaluating changes to policies for resolving customer disputes. Citigroup Inc (C.N) said it is "continuing to monitor events" involving consumer arbitrations.

Capital One Financial Corp (COF.N) and Discover Financial Services (DFS.N) said they have not changed their dispute resolution policies.

Reporting by Jonathan Stempel; additional reporting by Elinor Comlay and Juan Lagorio; editing by Andre Grenon, Bernard Orr

For this assignment, write a paper of at least one page and cover the following points.

1. Explain the benefits and drawbacks to Bank of America's credit card account customers with respect to this change.
2. In the years since this decision was made, have other companies enacted similar policies?If so, which companies?
3. Is this policy still in effect today?

In order to complete this assignment, you'll need to do a little bit of research.You may use all the resources at your disposal, including the internetIt will be necessary to list sources where appropriate.Make sure you're not just copying and pasting content from websites.The response should be written in your own words.