Photograph by Tetra Images/Getty Images
By Lucinda Shen
August 18, 2016

This story has been updated to include comment from the American Banker’s Association.

Frustrated consumers who want to take their banks to court are increasingly running into a wall.

More and more, the nation’s biggest financial institutions are requiring consumers to sign contracts lined with arbitration clauses when opening a bank account—waiving a customer’s right to take a dispute to court, according to a Wednesday report from the Pew Charitable Trusts.

About 70% of the 44 banks Pew surveyed in 2016 had arbitration clauses on their most basic checking accounts, compelling both parties to settle disputes outside of court with a third party mediator—giving consumers limited opportunity to appeal. That’s up from 59% about 3 years ago.

Similarly, 73% of banks restrict consumer participation in class action lawsuits, according to Pew, while an even higher 91% of banks prevent consumers bringing their disputes before a jury rather than a judge. Overall, 90% of banks have at least one provision restricting their customers’ options when resolving a dispute.

But those restrictions don’t sit well with U.S. consumers, who overwhelmingly want access to the legal system—even if they’re unlikely to take a dispute to court due to financial and time constraints.

“They want the right to pursue a class-action lawsuit,” Pew noted. “Such actions can hold companies accountable when consumers are unable to do so independently.”

 

The non-profit organization is now urging the Consumer Financial Protection Bureau to quickly finalize rules proposed in May that would give consumers more freedom over how, and if they can, litigate their bank.

The banking industry though says the rules wouldn’t benefit consumers—at least not financially.

“One question missing from the Pew survey is, ‘How much are people willing to pay to reserve their right to be part of a class action in which the average award is about $32?'” asked Nessa Feddis, American Banker’s Association’s senior vice president in an emailed statement. “The CFPB estimates that eliminating arbitration will add more than 6,000 class actions every five years, and it expects that consumers will pay for financial institutions’ increased litigation costs in the form of higher fees and fewer services.”

Pew’s research was based on the basic checking accounts of the U.S.’s 44 largest banks by domestic deposit volume. That list included Bank of America, Wells Fargo, HSBC, Chase, TD Bank, Capital One, Discover Bank, and Citibank.

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