Bank of America ends arbitration of credit card disputes

— -- In the industry's latest shift away from controversial forced arbitration clauses, Bank of America said Thursday that it will no longer require credit card, bank account and auto loan customers to sign away their right to sue.

The change comes as mandatory arbitration clauses — common in credit card, cellphone and, increasingly, employment contracts — come under fire from regulators and Congress. Last month, Minnesota Attorney General Lori Swanson sued a major dispute-resolution firm, National Arbitration Forum, charging that it hid its ties to the debt-collection industry. Since then, a growing number of dispute-resolution firms and credit card companies have backed away from arbitration.

Chase last month said it would no longer file new arbitration claims on consumer credit card disputes. BofA's move is broader because it will no longer require mandatory arbitration for banking and loan customers. That means customers can now sue the bank rather than having the dispute handled by a former judge or legal expert behind closed doors.

"This is a major victory for consumers," says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. "If banks know they won't be shielded by arbitration, it will lead to fairer (product) terms."

Some banks may review their use of arbitration to compete with their peers, says Scott Talbott, senior vice president of the Financial Services Roundtable, which represents large banks. Citizens Bank now says it's reviewing mandatory arbitration clauses in credit card contracts.

Meanwhile, American Express is "reassessing" its options related to arbitration forums, says spokeswoman Joanna Lambert.

While the industry still believes arbitration is a fair process, Talbott says, it has unfairly "become sort of a lightning rod" for criticism.

BofA says it decided to ax arbitration partly because of customer complaints. While it no longer requires arbitration for new disputes, it will determine whether individual existing disputes can go to court. Eric Gertz, 39, who has an arbitration hearing scheduled in September against BofA related to $18,000 in disputed charges, says it would be "unfair" if he couldn't sue the bank since other customers now can. BofA declined comment on his case.

Michael LeRoy, a law professor at the University of Illinois, says while he understands consumers' relief to have an option besides arbitration, they shouldn't expect the "delayed and over-taxed" court system to be a cure-all.