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Consumer Arbitration on the Way Out?

Another sign that consumer arbitration clauses are going the way of the dinosaur came from Bank of America, which has decided to remove pre-dispute arbitration clauses from its credit card agreements. The bank states that the decision was made in response to customer resistance to arbitration. In addition, the decision follows in the wake of regulatory pressures on some of the organizations conducting these arbitrations.

I outlined some of the problems with pre-dispute arbitration agreements in a previous post, which became the basis for an article published in the ABA’s Conflict Management Newsletter in the Spring of 2008. Essentially, I argued that the only benefit to pre-dispute arbitration agreements in consumer cases is to save money for the company requiring the clause. Consumers who have a dispute do not benefit by waiving their rights in advance, because the parties can still agree to arbitration after the dispute arises. While courts, especially federal courts, have been generally favorable toward enforcing arbitration agreements, there has been a backlash against such agreements from consumers, as well as from Congress and state regulators, based on the perception that arbitration is an unfair and unfavorable forum for consumers.

Evidently, Bank of America made the calculation that it will increase its goodwill with customers, and avoid potential problems with regulators, at the risk of facing the occasional lawsuit.

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