How JPMorgan's plan to send customers to arbitration wound up in court

A JPMorgan Chase credit card customer who's locked in a fee dispute may make it more difficult for the bank to revive arbitration.

Since Congress and President Trump killed a Consumer Financial Protection Bureau rule banning mandatory arbitration, many banks have reintroduced the practice. Unless customers contact their bank to opt out of arbitration, they cannot dispute issues through a lawsuit. Consumer advocacy groups have criticized arbitration as unfair to consumers.

JPMorgan has contacted cardholders in recent weeks about its own plan to reinstate arbitration. Since the bank dropped arbitration clauses in 2009, JPMorgan been handling disputes through the courts, but says it now wants to return to arbitration because the process is faster and cheaper both for the bank and consumers.

But the emails that JPMorgan is sending to customers about its switch back to arbitration may confuse Chase customers who could join the lawsuit filed by Kira Young of Columbus, Ohio, who seeks class-action status for her case, her attorney wrote in court filings.

That attorney asked a judge last week to prohibit JPMorgan from contacting customers about the upcoming arbitration plan. The attorney also asked a judge to approve discovery, so he could assess whether JPMorgan was deliberately trying to confuse customers.

At issue is “whether Chase is misleading putative class members regarding their right … to participate in this litigation,” Bradford deLeeuw, an attorney for Young, argued in a court briefing filed on Friday in a Delaware federal court.

Young’s attorney did not ask the court to block the bank from reinstating arbitration, only to limit its communications about the plan until his client’s lawsuit is resolved. It was unclear whether a potential court order requiring the bank to stop notifications would have the effect of forcing Chase to delay its arbitration plan, which is scheduled to take effect in August.

DeLeeuw, a partner at the Wilmington, Del., firm Rosenthal Monhait & Goddess, did not return calls seeking comment. U.S. District Court Judge Maryellen Noreika had not issued a ruling on Young’s request for a protective order as of Friday.

In the underlying lawsuit, Young and her attorney allege that JPMorgan uses deceptive language to confuse customers about the rules for when customers are charged interest on their purchases.

“Chase charges interest on all new purchases from the moment they are made, with no grace period, simply because other, prior purchases were not paid off in full,” DeLeeuw said in the lawsuit. “No reasonable consumer would expect this to be so and nowhere is the counterintuitive practice disclosed by Chase.”

Trish Wexler, a JPMorgan spokeswoman, declined to comment. Attorneys from the firms WilmerHale and Richards Layton & Finger had not filed responses on behalf of JPMorgan as of Friday.

The issue of arbitration has been hotly disputed in recent years, with Democrats introducing legislation in February to ban mandatory arbitration clauses in financial contracts. Democratic presidential candidate Kamala Harris and Rep. Katie Porter, D-Calif., have criticized JPMorgan’s decision to reintroduce arbitration in letters to Chairman and CEO Jamie Dimon.

Banks, however, say that arbitration is faster and cheaper for the public than litigation, and pays higher settlements to consumers, on average, compared to lawsuit settlements. American Express and Citigroup are among the banks that include mandatory arbitration clauses in credit card agreements, according to a recent study by CreditCards.com. Bank of America and Capital One Financial do not require mandatory arbitration, according to the report.

Many banks dropped arbitration provisions in 2009 and 2010, including Capital One Financial, HSBC and JPMorgan, to settle an antitrust lawsuit brought in 2004 by a group of consumers who accused the banks of colluding to force customers into arbitration. (American Express, Citigroup and Discover Financial Services declined to settle and won a dismissal of the case in 2014.)

But since Trump signed a congressional measure killing the CFPB’s rule in November 2017, arbitration has made a return. That may or may not be a coincidence, said Greg Hesse, an attorney at Hunton Andrews Kurth in Dallas who is not involved in the JPMorgan case.

“It’s hard to say what all of their motivations are for reinstating arbitration, but when the CFPB’s rule was overturned by Congress, that eliminated it as an impediment to arbitration in consumer finance agreements,” said Hesse, who advises banks on consumer protection laws.

JPMorgan cardholders can opt out of arbitration if they contact the bank in writing. The arbitration clause does not apply to Chase’s credit card that’s marketed through AARP.