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Suit Says Banks Conspired to Force Consumers Into Arbitration

September 1, 2005

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Eight leading credit card companies violated antitrust laws by colluding to promote arbitration of customer disputes, a lawsuit charges.

The lawsuit names Bank of America, Capital One, J.P. Morgan Chase, Discover, Citigroup, MBNA, Providian, and Britain's HSBC Holdings. It charges the banks "combined, conspired and agreed to implement and/or maintain mandatory arbitration," The Wall Street Journal reported.

The suit, which is seeking class-action status, was filed in New York federal court on behalf of seven plaintiffs who live in California, Pennsylvania, New York, Illinois and New Jersey. It alleges that some of the banks named in the suit convened a group in 1999 called the "Arbitration Coalition" or "Arbitration Group" to discuss how to force consumers to accept arbitration of their disputes.

Many of the largest U.S. credit-card companies require customers to sign away their ability to take disputes to court and to instead settle disagreements in arbitration but this is the first time there practice has been formally challenged on antitrust grounds.

The suit claims that bank representatives spoke or met at least 20 times from 1999 to 2003 to share experiences from arbitration as well as advise on how to set up arbitration agreements with consumers that would withstand challenges in court.

Under federal antitrust law, it is illegal for major competitors in a given industry to secretly conspire or collude to restrict trade or commerce.

The banks had no immediate statement on the allegations.

The companies have argued in the past that arbitration provides a speedy and fair alternative to litigation and prevents disputes from escalating into class-action complaints that can be very expensive to settle.

But consumer advocates argue that forced arbitration denies citizens their day in court and puts individual consumers at an unfair disadvantage, since the companies usually control the arbitration process.

However, a recent study by Ernst & Young found consumers prevailed more often than businesses in arbitration, the Journal said. Ernst & Young said it was engaged by the law firm Wilmer Cutler Pickering Hale and Dorr, which has worked with card companies.

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