(Recasts background, adds comment from American Association for Justice, starting in third paragraph.)
DOW JONES NEWSWIRES
JPMorgan Chase & Co. (JPM) agreed to drop arbitration clauses from its credit-card agreements as it reached a tentative settlement of a suit that accused the bank and other lenders of unlawfully conspiring to require cardholders to resolve disputes out of court.
The lawsuit accused credit-card units of Chase, Bank of America Corp. (BAC), Capital One Financial Corp. (COF), Citigroup Inc. (C), Discover Financial Services (DFS), HSBC Holdings PLC (HSBA.LN, HBC) and others of violating antitrust laws by secretly consulting each other numerous times with the aim of requiring cardholders to arbitrate all disputes, plaintiff law firm Berger & Montague PC said Friday.
Leading arbiter National Arbitration Forum pulled out of consumer-debt arbitration over the summer as part of a settlement with the state of Minnesota. The smaller American Arbitration also stopped hearing such cases, though it said its decision wasn't related to NAF's case, because it found "weaknesses in the consumer debt collection arbitration process," according to its Web site. The exit of the nation's two main debt arbitrators was part of a larger shift by banks away from requiring unhappy customers to arbitrate disputes rather than go to court.
A Chase spokesman said Friday the bank had stopped sending cases to arbitration in July and has subsequently decided to remove the arbitration clauses.
The settlement, if approved, would formalize those decisions, as Chase agreed to drop its clause for at least 3 1/2 years starting in 2010, and to immediately stop enforcing existing clauses. Chase further agreed not to "contract, combine or conspire" with any other credit-card company concerning arbitration," according to the statement from Berger & Montague, which is based in Philadelphia. Chase, which denied any wrongdoing, will also make a payment toward attorneys' fees and costs.
In exchange, the plaintiffs will release Chase from any liability stemming from the insertion of its arbitration clause into its cardholder documents, but not from claims stemming from actual arbitration.
"JPMorgan's decision is a win for consumers, who previously had no recourse because of rigged forced arbitration proceedings. Unfortunately, other lenders and corporations outside the financial sector still insist on forcing their employees or customers into one-sided arbitrations to escape accountability," said a lawyer's group, American Association for Justice.
Shares of JPMorgan closed down 0.2% to $42.46. The stock is up 35% this year.
-By Jay Miller, Dow Jones Newswires; 212-416-2355; jay.miller@dowjones.com