SAN FRANCISCO -- A California court has dismissed a challenge to BankAmerica Corp.'s mandatory arbitration policy in disputes with consumers, one of the banking industry's most aggressive programs for reining in legal costs.
In an oral decision issued last Thursday, San Francisco Superior Court Judge Thomas Mellon Jr. ruled that BankAmerica had not been unfair or deceptive in requiting its 12 million California credit card and deposit customers to accept arbitration.
BankAmerica litigation director James N. Roethe called the decision in Badie v. Bank of America "a clear victory."
Although the ruling directly affects only California institutions, the case is seen as a test of how judges elsewhere may view efforts to keep disputes out of the courts in favor of alternative procedures.
"This was the first basic challenge to a bank's attempt to force customers into mandatory arbitration," said Ken McEldowney, executive director of Consumer Action, a San Francisco advocacy group and co-plaintiff in the suit.
The group plans to appeal the decision, he said.
The case concerned a 1992 move by BankAmerica's California unit to change account agreements, giving it the option of having customer lawsuits resolved through binding arbitration under the rules of the American Arbitration Association.
The bank adopted a similar procedure, called "judicial reference," for class-action complaints.
BankAmerica informed customers of the changes by sending notices with account statements. Brokerage firms, which widely use mandatory arbitration, generally get signed consent forms from customers.
Trial lawyers and consumer groups sued BankAmerica, claiming that the company had failed to adequately notify customers and, in any case, could not unilaterally take away their right to bring disputes to court.
But the court ruled the notices were adequate and BankAmerica's account agreements permitted it to modify terms to provide for arbitration.