Chase Arbitration: Opt In? Opt Out? What’s True? What’s False?

The following is not legal advice. It is written by Alex from Bachuwa Law for educational purposes only. If you have a question or if you believe you have a complaint, submit an inquiry on bachuwalaw.com

Everyone is upset that Chase has updated its terms and conditions to include an arbitration provision. This leaves only a few banks including Capital One and Bank of America as major banks that have not instituted such a policy. Barclays, American Express, and Citi all have consumer arbitration agreements. The question everyone is asking is, “Is it in the consumer’s best interest to accept or reject Chase’s forced arbitration and why?”

The analysis is simple if this is taken from the perspective of one individual who is upset with Chase. On an individual basis, it is in the consumer’s best interest to resolve disputes through arbitration. Based on my experience of handling hundreds of these cases, there is the likelihood of a decent settlement early on in the process. That amount will be much higher than the token award that comes from a class action.

The analysis is more complex if this is taken from the perspective of a group of people. For the sake of argument, let’s assume that every DoC community makes a pact to either opt in or opt out. No one will go rogue. Entertaining this impossibility, the question now is, “Is it in our best interest to accept or reject Chase’s forced arbitration and why?” To answer this overarching question, I will address many generalizations regarding arbitration.

Consumer Can Reject the Agreement to Arbitrate

Arbitration is a creature of contract. If a consumer does not want to be bound by an arbitration clause, the consumer can either cancel the credit card or write Chase a letter stating that he or she is opting out. In response to opting out, it is unlikely that Chase will retaliate by closing the consumer’s card and listing this as the reason for doing so. That does not mean that Chase will not do so and cannot do so. It seems more likely that Chase would want to prevent backlash and litigation and would provide another justification for why it is no longer wants the consumer as a customer. To be clear, Chase can close a customer’s account at any time for any reason.

Verdict: True and False

Consumers Have a Lower Chance of Winning in Arbitration

Referencing, Ian Millhiser’s article, Chase Just Tried to Screw Its Credit Card Holders. Here’s How You Can Fight Back, the Economic Policy Institute’s Ross Eisenbrey explains, “individual workers forced into arbitration are less likely to prevail before an arbitrator than they are before a real judge. And when they do prevail, they typically receive far less money.” This statement pertains to employment arbitration, not consumer arbitration. However, let’s assume the data is similar in consumer. Obviously, this is a strike against opting on. At the same time, the data is limited as the number of arbitrations filed and the results, especially if the claims end in a settlement, are difficult to come by.

Verdict: True and False

Class Action Bans Are Against the Best Interest of the Public

Millhiser writes, “Class action bans effectively allow companies to illegally take money from their workers or consumers with impunity, so long as they only take a little bit at a time.” This statement artfully and accurately describes the motivation of companies for vehemently fighting for class action bans. It also assumes that companies are acting in bad faith. Millhiser writes, “Suppose, for example, that a bank decides to illegally charge a $150 fee to each of its 100,000 credit card customers.” In this hypothetical, Millhiser states that the bank is ‘deciding’ to scam its customers and is using arbitration as a way of getting away with this heist. If this were true, then the most effective way to expose corporate corruption is through class action. If the community believes that Chase is forcing arbitration in a nefarious plot to swindle its customers, opting out of arbitration to protect against this inevitability is the prudent course of action. This assumes that the community will be able to prove that Chase intentionally set up a scheme to defraud consumers and they will be properly sanctioned by the courts for doing so.

Verdict: True

Class Actions Are Necessary Because It Is Illogical to Litigating Low Dollar Cases

Millhiser writes, “Nearly none of these customers will sue the bank over a matter of only $150, because the cost of litigating such a case will exceed the amount of money at issue.” In consumer arbitration cases, the consumer pays a $200 filing fee. Logically, it does not make sense for a consumer (or even a law firm) to pay $200 when the basis of the dispute is less than that amount. In reality, when a consumer pays the filing fee, it forces the corporation to make a decision. Either it can settle the case at this juncture, or it can incur thousands of dollars in additional filing fees, which it is obligated to pay under the arbitration agreement. This does not include the cost of hiring an attorney to defend the company against the dispute. It also does not factor in the risk that the company will lose, which results in monetary damages including punitive damages if consumer fraud can be proven.  It also includes attorney fees which can total tens of thousands of dollars. Unless the consumer’s complaint is frivolous i.e., made up, the consumer should file the claim.

Verdict: False

Companies Win When No One Opts Out

Millhiser cites the Uber case where only 270 drivers out of more than 160,000 opted out of Uber’s forced arbitration agreement to demonstrate how opt-out clauses help protect companies from a court decision invalidating a forced arbitration agreement. This is an employment not a consumer case, but the implication is that Uber mitigated its liability by forcing arbitration and eliminating the class action possibility. Facing a cost of $600,000,000 after 60,000 claims were filed, Uber may not be as enamored with arbitration as it initially was (see Uber’s Arbitration Addiction Could Be Death by 60,000 Cuts).

Verdict: False

Opt In? Opt Out? That’s What It’s All About

To fight companies, our strength is in numbers. Historically, this advantage was realized by way of class action lawsuits. Today, that mechanism has all but been eliminated by way of mandatory arbitration agreements. That does not mean the advantage has been neutralized. On the contrary, if the DoC pact opt in is adhered to, consumer arbitration will make it easier to file a mass action against companies. Indeed, the obstacles of class actions which are quite challenging to overcome are no longer a hindrance. There is no need to survive the summary judgment stage of litigation or have the class be certified before the arbitration can proceed. Consumers do not even have to hire a lawyer. All consumers would have to do is file a notice of dispute and force companies to play by the game they invented. Thousands of iterations later, Chase, like Uber, may rethink whether mandatory arbitration was a sound strategy. The resulting headline will be Chinese Water Torture: How Chase Went Insane from the Slow Drip of Unrelenting Arbitration Claims.

If you have any follow-up questions please voice them in the comments. If you’d like to discuss anything privately, you can find us at BachuwaLaw.com. Thanks for reading! Also don’t forget to check out the Fine Print series on Frequent Miler.