Pulling the Class-Action Trigger

Looks like mandatory arbitration clauses are starting to find their way out of auto loan contracts, a move that could open the door for class-action lawsuits against lenders.

JPMorgan Chase will remove mandatory arbitration clauses from credit card agreements, pending settlement of a lawsuit accusing the bank and other financial institutions of conspiring to force cardholders to resolve credit-card disagreements out of court. The bank stopped sending debt collection cases to arbitration in July, days after the National Arbitration Forum, one of the nation’s largest arbitration groups, agreed to stop handling consumer claims and the American Arbitration Association, a similar firm, pulled out of debt-collection arbitration.

“Mandatory pre-dispute arbitration clauses,” usually in the fine print of consumer agreements, are provisions that call for consumers to waive their rights to court hearings should disputes arise. Instead, the clauses mandate that any disputes be resolved by an arbitrator.

Arbitration clauses, meant to provide an alternative means for dispute resolution and to prevent class actions, have been a part of auto finance contracts for more than 15 years.