J.P. Morgan Chase is rolling out a new policy that may block disgruntled customers from taking their cases to court. The bank decided to bring back forced-arbitration clauses to the majority of its credit-card products, including Slate, United MileagePlus and Sapphire.

Customers who are using those cards have been notified by email of the changes to their account terms. Chief communications officer Trish Wexler said that almost all of the credit cards issued by the bank will have the arbitration element within the cardholder agreement. The only exception is the AARP card.

What the Clause Does

The forced-arbitration clause stipulates that all disputes between Chase and its customers must use binding arbitration to reach a resolution. This would require that all cases be handled by a private arbitrator and bar customers from suing the bank directly.

The clause would also block class-action lawsuits and other similar legal actions. Customers would still be able to take Chase to small claims court. Since 2016, the bank has had 300 small claims cases filed against it in the state of California. Chase eliminated its original arbitration policy a decade ago during a class-action settlement. Recently, those settlement terms expired, and the bank decided to put the policy back into place.

Consumer Concern

Chases’ decision to reintroduce forced arbitration has caused concern among consumer advocates. National Consumer Law Center director Lauren Saunders said that forced arbitration allows banks and other businesses to break the law.

She added that such clauses take away the constitutional rights of consumers to go to court or band together when large numbers of people are being defrauded. Saunders concluded by saying the action is bad for both the bank and the credit card market as a whole.

The Popularity of Arbitration

Arbitration has become a popular choice for dispute resolution, and clauses for its use are present from credit card user agreements all the way to contracts between companies and their employees. Banks use arbitration the most often, with a 13 percent rise in such clauses recorded during the three-year period of 2013 to 2016. In 2015, a rule banning forced arbitration was handed down by the Consumer Financial Protection Bureau (CFPB), but President Trump blocked it. A 5-4 decision by the Supreme Court in 2018 upheld employer arbitration clauses.

Trish Wexler claims that Chase’s decision to reinstate forced arbitration will result in better outcomes that are resolved more quickly at less expense to customers. There are important points to note about this claim:

• The CFPB issued a report in 2015 that indicated customers received higher payouts from arbitration, at an average of $5,389, than they did from going through a class-action lawsuit, which averaged $32.
• The report is misleading because consumers are awarded payouts in only nine percent of arbitration cases, while companies won 93 percent of the time through their own claims or counter-claims.
• The Economic Policy Institute found the disparity between payouts and actually winning arbitration cases resulted in consumers paying an average of $7,725 to lenders and banks.

Read more about Chase’s binding arbitration policy on financialtaskforce.org.

Consumer Opt-Out

Chase is allowing its existing customer base to opt-out of the arbitration clause, but it does require some work. This can be done by sending a letter to the bank that specifically states the cardholder is rejecting the arbitration clause. The letter should include the customer’s name, mailing address, signature and account number. It should be noted that customers who are members of the military are automatically exempted from arbitration clauses and do not have to send a letter.

The opt-out applies to new Chase customers as well, but it must be done within 30 to 90 days of account creation. Social media posts from Chase customers have indicated mixed results from the opt-out process. Some said they were told their accounts would be closed if they rejected the arbitration clause while others claimed they were told their accounts would remain open.

Lauren Saunders said in some cases, companies will offer a quick way to opt-out of arbitration, and that customers should always take advantage of that.