Capital One Settles Litigation Over Card Disputes


By Mark Jewell, AP Business Writer

BOSTON (AP) — Capital One Financial Corp. will drop language from credit card contracts that requires customer disputes to be handled through binding arbitration rather than the courts, a spokeswoman for the bank said Thursday.

New agreements without the mandatory arbitration clause will be sent to all Capital One credit card customers next month, spokeswoman Pam Girardo said.

Word of the plans came as a law firm that sued major card issuers reported a tentative settlement with Capital One on Thursday over clauses requiring arbitration rather than litigation in disputes including debt collections. JPMorgan Chase & Co. reached a similar agreement last month in the four-year-old case, and Bank of America Corp. followed suit on Tuesday.

Girardo confirmed that McLean, Va.-based Capital One has reached a settlement with the firm Berger & Montague, subject to court approval.

But she said the litigation did not drive the decision to drop the arbitration clause. Most disputes with customers are handled through customer service channels, she said, and arbitration "has not been utilized often enough by either our cardholders or Capital One to warrant having it remain in the agreement."

Eliminating the provision, she said, "would be the simplest way to pre-empt any confusion or concern that might arise in the future."

Philadalphia-based Berger & Montague said its tentative settlements with Capital One and the two other card issuers leave four remaining defendants in the lawsuit: Citibank, Discover, HSBC and the National Arbitration Forum. The case is a class-action lawsuit brought on behalf of card holders in federal court in New York City.

Before its settlement was disclosed Tuesday, Bank of America had announced plans to stop enforcing the arbitration requirement in credit card agreements with existing customers. Now, the Charlotte, N.C.-based bank has agreed to go further by removing arbitration clauses from consumer and small business card holder agreements for at least three and a half years.

Capital One made a similar three-and-a-half year commitment in its tentative settlement, Berger & Montague said.

The lawsuit alleges that major banks conspired to require their card customers to resolve disputes in arbitration.

Banks say arbitration is less costly for everyone than litigation as a forum for resolving disputes. They also argue that banks' increased legal costs would in turn be passed on to consumers. But consumer groups have criticized arbitration as tilted in favor of banks. Many consumers are unaware that card agreements typically include a clause that waives a card holder's right to sue.

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