As part of a settlement agreement, JPMorgan Chase & Co. has become the second major credit card issuer to abandon mandatory arbitration, dealing another blow to the once-common industry practice.
JPMorgan Chase, the nation's largest issuer, said Friday that it will remove the arbitration clauses from its credit-card contracts effective during the first quarter of 2010. It follows Bank of America Corp., which said in August that it was eliminating arbitration clauses from its card and other consumer contracts.
"We believe our decision is the right thing for our customers and our business, and it reflects our commitment to clearer and simpler communication with our customers," Paul Hartwick, a spokesman for JPMorgan Chase, said in an e-mail Friday.
Berger & Montague P.C. said Friday that it had agreed to drop a long-runningclass-action suit that had alleged that JPMorgan Chase and other issuers of "unlawfully conspired to require their cardholders to arbitrate disputes." Under the terms of the settlement JPMorgan Chase will drop its arbitration clause for three-and-a-half year, will not discuss arbitration with other issuers and will cover attorney's fees for the plaintiffs.
The other defendants in the suit included Capital One Financial Corp., Citigroup Inc. and Discover Financial Services. The settlement with JPMorgan Chase does not affect the case against them.
In July, after two large arbitration firms said they would stop handling consumer debt-collection disputes, JPMorgan Chase said it had stopped filing consumer credit card arbitration claims and that it was reevaluating the inclusion of a mandatory arbitration clause in future consumer contracts.
Hartwick said Friday that the New York company made the decision after it spent the past few months looking "closely at this issue" and hearing "views from consumers and other interested parties."
Credit card companies have long included mandatory arbitration clauses in their cardholder contracts in order to divert consumer lawsuits away from the court system and into the privately-run arbitration system; some issuers also use arbitration to pursue debt-settlement claims. Consumer advocates had long criticized the "pre-dispute" binding nature of the arbitration clauses, as well as the perceived pro-industry biases of National Arbitration Forum Inc., the nation's largest consumer credit arbitration company.
But in July, National Arbitration Forum said it would stop handling consumer disputes as part of a settlement with the Minnesota attorney general. Another large arbitration company, the American Arbitration Association, subsequently followed suit, placing a moratorium on consumer debt-collection cases.
Several major issuers, including JPMorgan Chase and American Express Co., said in July that they were reconsidering their use of arbitration clauses, but B of A was the first to eliminate them altogether.
Hartwick said Friday that the loss of arbitration clauses will not greatly affect JPMorgan Chase's collection approach. "Most debts are pursued through standard collection strategies or litigation," he said. And for customer-initiated complaints and lawsuits in the future, he said, "customers have a number of options for pursuing disputes with us," including lawsuits.