December 18, 2009
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News: Capital One To Remove Arbitration Clause
Capital One Financial Corp, the nation's look up statistic announced that the company will be eliminating the arbitration requirements from the company's credit card terms and conditions. The clause in question stipulates that customers must utilize the arbitration process to handle disputes pertaining to their card accounts. Capital One expects to have copies of the new agreement in the consumers' hands during January 2010. An announcement was made after the bank settled a class action lawsuit filed by a Philadelphia based law firm in the New York City court system representing credit card holders. The dispute which has been ongoing over the past four years also names several other major lenders as defendants including Citibank, Discover, HSBC, and the National Arbitration Forum. JPMorgan Chase & Co. was also named in the lawsuit; however, the nation's number one credit card company reached an agreement with the Philadelphia law firm, Berger & Montague. Bank of America also reached an agreement last Tuesday.
According to court document, the named credit card companies conspired to enforce mandatory arbitration in resolution of credit disputes. However, lenders maintain that it is more economical to participate in arbitration than pursuing disputes in the court system. Furthermore, they say that the increased legal fees would only be passed on to consumers adding to an already hostile environment. The company says it did not settle under pressure from litigation, but rather the lack of use drove the decision to remove the arbitration clause from the contract. Eliminating the clause will remove confusion in the future. Additionally, Capital One has agreed to remove the clause from small business credit card accounts for at least 3 ½ years.
The lawsuit stems from a clause that is embedded in the fine print of credit card contracts stipulating that credit disputes must be solved by arbitration. Lenders typically employ separate debt negotiation companies to facilitate negotiations with cardholders. Under pressure from attorney generals across the nation that discovered the existence of a dual role on the part of debt negotiation firms, these firms have been forced to exit the arbitration business. As a result, lenders have been placed in a difficult situation due to lack of adequate resources to handle arbitration. Lenders have begun developing and implementing programs to train staff in dealing with arbitration.