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Ross vs. Bank of America—The End of Credit Contract Arbitration?

Monday, February, 13, 2012

The financial and legal worlds are virtually abuzz with news about mandatory contract arbitration, especially in relation to credit and loan contracts. Amendments to the Federal Arbitration Act (FAA) for consumer protection are awaiting consideration on House and Senate judiciary committees. The Consumer Financial Protection Bureau (CFPB) is being pressured by consumer advocacy groups such as the National Consumer Law Center (NCLC) to prioritize restrictions on mandatory arbitration clauses. Now the case of Robert Ross, et al., vs. Bank of America, NA (USA), et al. has been ordered to go to trial.


How Does This Affect Legal Arbitration?


This case is a class action complaint against a large number of banks and credit agencies. The claim is that the defendants colluded in an antitrust conspiracy to, as a unified force, introduce mandatory arbitration clauses in their credit contracts in order to curtail class action litigations. All of the defendants except Citigroup and Discover settled and have removed the mandatory arbitration clauses from their contracts for the ensuing 3 ½ years.


Penalties in the judgement notwithstanding, if it is proven that these companies did conspire to illegally impose these clauses in their customer contracts, it could signal the end of mandatory arbitration. At least it could provide a strong legal precedent for strict restrictions on how arbitration is handled. If the defendants are found innocent, it could have little or no effect on credit arbitration.


Are Credit Arbitration Clauses Likely to Fail?


Of course, it is hard to say with any certainty that the defendants will lose. The evidence of an antitrust conspiracy is strong enough to justify a jury trial, but it was not quite strong enough to gain a summary judgement. There were several “points of fact” that need to be decided by a jury trial. Also, two huge points stand out: Were any consumers actually harmed by these clauses, and are they, in fact, unlawful?