Ninety percent of Americans use checking accounts, but they are often unaware that agreements with their bank limit their legal options if there is a disagreement, a new report from an arm of the Pew Charitable Trusts finds.

The report studied 92 large financial institutions and found most (64 percent) limit consumer options for resolving complaints about checking accounts in some way, like through the use of “mandatory binding arbitration” clauses. The clauses require customers to submit complaints to an outside arbitrator — usually chosen by the bank — instead of to a court.

The bigger the bank, the report found, the more likely it is require arbitration or impose other restrictions. (The report says 43 percent of institutions use agreements with mandatory binding arbitration clauses, but that number rises to 47 percent when only banks are included, because none of the credit unions in the study use the clauses.)

“Consumers need to be educated about this,” said Cora Hume, project manager for Pew’s Safe Checking in the Electronic Age Project.

Banks favor mandatory binding arbitration as a faster, cheaper alternative to the courts. But consumer advocates worry that the process may limit an account holder’s options for appeal, and can pose conflicts of interest if a bank provides private arbitrators with repeat business.

For the report, “Banking on Arbitration,” Pew’s safe checking project examined checking account agreements at 92 of the country’s largest banks and credit unions, as measured by deposits. The report also includes results of a telephone survey of 603 customers.

Pew has created an interactive graphic to help consumers understand the difference between using arbitration and courts.

Jean Sternlight, a professor at the University of Nevada-Las Vegas law school, writes in an article to be published in The Southwestern Law Review that mandatory binding arbitration clauses, whether in banking or other consumer contracts, stymie the filing of consumer claims over all.

Despite millions of contracts covered by mandatory arbitration clauses, she says, few consumers actually file claims under them. That’s probably because simple complaints are often handled by companies’ own customer service processes, but consumers lack the knowledge or financing to pursue more difficult claims themselves. As a result of the United States Supreme Court’s decision last year in the ATT Mobility case, consumer class actions — which can provide an avenue for more complex cases — are now more limited, so legal options for consumers appear to be dwindling.

The Pew report found that consumers seem to like the general idea of arbitration as a simpler, less costly alternative to courts. But they overwhelmingly disapprove of specific components of mandatory arbitration. More than two-thirds of consumers said they should have a choice between taking their case to arbitration or to a court. And more than 90 percent of consumers said they thought it was “unacceptable” if consumers were required to pay a bank’s legal fees, even when the consumer wins the dispute.

Pew said it conducted the research in part to aid the Consumer Financial Protection Bureau’s inquiry into the use of mandatory arbitration clauses. The agency is required by the Dodd-Frank financial reform act to examine use of the clauses in financial products.

Have you ever brought a complaint against your bank using the arbitration process?

Article source: http://bucks.blogs.nytimes.com/2012/11/28/how-banks-limit-your-options-in-a-dispute/?partner=rss&emc=rss