The Pew Charitable Trusts has released a report on the use of arbitration clauses by banks in checking account agreements. Pew examined the prevalence of such clauses and consumer attitudes about arbitration.

The report is based on Pew’s review of  account agreements obtained from 92 of the nation's 100 largest retail banks and credit unions by deposit volume that offered at least one personal checking account option to consumers. Key findings include:

  • The larger the financial institution, the more likely the institution's account agreement will contain a mandatory arbitration clause.
  • Consumers are overwhelmingly dissatisfied with the arbitration process and find a majority of the procedural components of arbitration unacceptable.

Readers of the study should keep several important caveats in mind, however, when assessing the findings. First, the study’s finding regarding consumer dissatisfaction was not based on a survey of consumers who had participated in the arbitration process. Instead, Pew identified consumer respondents who were simply checking account holders. In fact, the study is inconsistent with the findings of previous studies, which showed that consumers who go through arbitration prefer it to the courts as a way of resolving disputes with companies. (Harris Interactive, Survey of Arbitration Participants, April 2005).

One of the arbitration features the study found unacceptable to consumers is “the ongoing relationship between arbitration companies and financial institutions.” But this “repeat player” argument is refuted by a 2009 study that looked at 301 AAA consumer arbitrations and identified no statistically significant "repeat player" effect (Christopher R. Drahozal and Samantha Zyontz, “An Empirical Study of AAA Consumer Arbitration,” 25 Ohio State Journal on Dispute Resolution 843 (2010)).

Another feature the Pew study deems unacceptable to consumers is “the requirement that the consumer pay the bank's legal fees regardless of the outcome of the dispute.” This finding ignores the reality that the overwhelming majority of arbitration clauses currently in use do not impose such a requirement. Rather, such clauses typically give the consumer the right to recover counsel fees if he or she prevails.

A second caveat is that Pew is previously on record as an opponent of consumer arbitration. In a March 2009 report, Pew proposed “Safe Credit Card Standards,” which it described as “intended to support policy makers as they evaluate legislative responses to deceptive and dangerous industry practices.” Those standards called for “the elimination of pre-dispute binding arbitration agreements which can prevent cardholders from accessing courts to challenge unfair and deceptive practices.”

A third caveat is that checking account holders, when asked by Pew if they found various arbitration features to be acceptable or unacceptable, would have been naturally predisposed to find such features to be unacceptable. Because the arbitration process implicitly requires a tradeoff of certain rights that exist in court proceedings for the efficiencies and benefits of arbitration, a consumer who is unfamiliar with the process or does not understand arbitration's potential efficiencies and benefits is likely to view most arbitration features negatively.

Ballard Spahr’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or, or Mark J. Levin, 215.864.8235 or

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