A majority of the largest banks in the country restrict their customers’ legal options for resolving disputes. A study released Nov. 26 by The Pew Charitable Trusts found that 64 percent of the largest 100 banks restrict the dispute resolution options for their checking account customers. The limitations typically include mandatory arbitration, bans on class actions, waivers to jury trials, restrictions on damages and shortened statutes of limitation.
Pew as passed the study results onto the Consumer Financial Protection Bureau, which is studying whether arbitration gives one side an advantage over the other.
Mandatory arbitration clauses are more frequently found in the terms and conditions of larger banks, the study found. Only one-quarter of banks allow consumers to “opt out” of this process.
“A checking account is the most widely used financial product in the United States, and many bank customers become bound by a mandatory arbitration agreement when they open their account,” said project director Susan Weinstock. “We found that most consumers were not aware that their right to go to court is often limited if they have a dispute with their bank.”
Pew conducted a two-part review of dispute resolution. The study looked at the 100 largest retail financial institutions by deposit volume to determine the prevalence of mandatory binding arbitration clauses and other dispute resolution terms in checking account agreements. Additionally, Pew commissioned a survey of consumers to determine Americans’ attitudes and awareness of these clauses in checking accounts.
The study reports the following 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 50 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.
Most consumers (almost nine in 10) interviewed for the study said they would prefer to retain their right to go to court if necessary, although about half of consumers support the overall goal of arbitration – to be a simpler, less costly alternative to court.
Pew was able to collect and review account agreements from 92 of the 100 largest financial institutions in the U.S. that offered at least one personal checking account option to consumers. To assess consumer knowledge and understanding of mandatory binding arbitration, Pew commissioned a survey of checking account holders. Interviews were conducted from July 9 – 11, 2012 among 603 respondents age 18 and older. The margin of error for total qualified respondents is +/- 4 percent at the 95 percent confidence level.
Click here to read the report.
Click here for a news account of the report.