If you have a dispute with your bank over your checking account, don't count on being able to take your case to court.
Most large banks restrict the options consumers have for handling such disputes, and nearly half require customers to take the matter up in arbitration, not the courtroom, according to a new report out Tuesday. And many checking account holders don't realize that's in the fine print.
The 18-page report by Pew Charitable Trusts is being sent to the watchdog Consumer Financial Protection Bureau, which is studying arbitration agreements in consumer financial products for potential regulation.
The study, believed to be the first of its kind, examined the dispute resolution clauses tucked into the checking account agreements of 92 of the country's largest retail banks and credit unions and found that 64 percent restricted dispute resolutions in some fashion and 43 percent contained mandatory binding arbitration clauses.
None of the seven credit unions that were part of the study included arbitration clauses, raising the percentage of banks in the study requiring arbitration to 47 percent.
Other restrictions include banning class-action lawsuits, waiving rights to jury trials, restricting damages and shortening statutes of limitations.
The two-part study also surveyed 603 adult checking account holders about their attitudes toward mandatory binding arbitration clauses. The upshot: more than two-thirds said they should have a choice between taking their dispute to arbitration or to court, and 94 percent said that if arbitration is required, they should have a say in who is selected to arbitrate the dispute.
But the majority also said arbitration protects against frivolous lawsuits, indicating that consumers are somewhat conflicted about the practice.
Susan Weinstock, director of the Pew Safe Checking in the Electronic Age Project, said in an interview that checking accounts are the most widely used financial product in the country and a gateway product to other services. Many bank customers are bound by mandatory arbitration agreements when they open accounts and don't even know it, she said.
When account holders were surveyed about whether their agreement included language about dispute resolution, 57 percent said they either didn't know or didn't remember.
The median length of the checking account disclosures used by the 12 largest banks is 69 pages, Weinstock noted.
The Pew report didn't address the outcomes of arbitration. Cora Hume, project manager in Pew's safe checking project, said that's difficult to know because so many arbitration agreements contain rules of confidentiality.
At least one dispute resolution expert called the report's findings "worrisome."
"What we're seeing is that a large portion of the major banks in the U.S. are insulating themselves from litigation," said Jean Sternlight, a law professor at the University of Nevada.
Sternlight said that to her, the single most damaging restriction is banning class action lawsuits because they are a means of addressing widespread improper practices that individuals, each on their own, probably could not pursue.
Sternlight said that, in reality, almost no consumer claims against companies ever actually go to arbitration. "The real impact is they take claims that would have been litigated and they evaporate them," Sternlight said.
In one class action that did take place, Gutierrez vs. Wells Fargo, the bank was ordered to pay $203 million to customers who overdrew their accounts and were charged hefty overdraft fees because of the way the bank ordered their transactions. The case remains on appeal.
Thomas Stipanowich, a law professor at Pepperdine University, said the Pew study doesn't go far enough. Arbitration is not inherently bad, he said, and varies greatly from agreement to agreement. But he agreed that the restrictions on filing class-action lawsuits were particularly damaging.
"The real critical problem here is that not only does the public not really know and understand what arbitration involves, but the study itself does not really come to grips with many of the aspects of arbitration that are not included in contractual agreements," he said.
Jennifer Bjorhus 612-673-4683