Bank of America Drops Arbitration Requirement

Bank of America Corp. said that as of Thursday it will stop requiring that disputes with its credit card holders and banking and lending customers be settled by binding arbitration, opening the door for class-action and other lawsuits to push up the bank's legal costs.

Many consumers are unaware that card agreements typically include a clause that waives a card holder's right to sue. Lenders instead use arbitration to go after delinquent accounts and consumers can employ arbitrators to fight disputes with their banks.

Banks have said arbitration is less costly for everyone than lawsuits, but consumer groups have criticized the practice as tilted in favor of banks.

Bank of America spokeswoman Shirley Norton said the change covers the company's credit cards, consumer RV and marine loans, and banking customers. She acknowledged that the bank may face more lawsuits now, but said Bank of America is hoping to work out most disputes directly with customers.

"We've always maintained that arbitration was a very fair process, but we got feedback from our customers that they didn't feel that way, so we decided to make a change," she said.

The arbitration industry has also been getting feedback from the government.

Last month the biggest arbitration group, the National Arbitration Forum in St. Louis Park, Minn., agreed to stop arbitrating credit card disputes after being sued by Minnesota Attorney General Lori Swanson, who alleged violations of state consumer fraud, deceptive trade practices and false advertising laws by hiding financial ties to collection agencies and credit card companies.

Swanson said the group handled more than 214,000 collection claims in 2006. The group had denied wrongdoing but said it got out of the business of arbitrating consumer finance loans because of legal costs.

A few days later the American Arbitration Association said it would stop arbitrating consumer debt collection until the process is reformed. And a Congressional committee has held hearings on a proposal to ban arbitration clauses from credit card agreements.