Umpqua Bank is joining other major financial services firms in barring customers from filing class-action lawsuits, requiring instead that they arbitrate disputes privately, outside of a courtroom.
The moves come after a series of U.S. Supreme Court rulings upholding the right of companies to keep consumer disputes from going before a judge or jury. It also comes as banks battle numerous class-action lawsuits over alleged deceptive practices.
Wells Fargo & Co. drew customer ire this winter when it announced it was strengthening its mandatory arbitration requirement. JPMorgan Chase & Co. is giving customers a window to opt out of its new arbitration agreement.
Umpqua, the largest Oregon-based bank and a division of Portland-based Umpqua Holdings Corp., inserted the arbitration requirement in a new deposit agreement mailed to customers last week. It takes effect Feb. 15.
The bank will require checking, money-market, CD and savings account holders to resolve disputes through an arbitration service in Portland. It also will waive the customer's right to bring claims as part of a class-action lawsuit or class arbitration.
"At the end of the day, arbitration is less expensive and faster, should there be an issue for both us and the individual consumer," said Rick Calero, executive vice president for community banking at Umpqua, in an interview Monday.
Competitors are taking similar steps. Along with waiving the right to bring a class-action, Wells Fargo's new agreement specifies that "you and the bank are waiving the right to a jury trial or trial before a judge in a public court."
Chase is giving existing checking and savings customers between Feb. 1 and April 2 to opt out of binding arbitration. New customers can opt out within 60 days of opening an account.
All three banks are fighting national class-action lawsuits brought by customers alleging they deceptively re-ordered debit transactions to inflate overdraft fees. Calero said Umpqua's change was driven more by the need to make agreements uniform across all its branches after acquisitions left it holding different agreements.
"It's more of a coincidence that we're all doing it," Calero said.
Consumer arbitration agreements aren't new. U.S. Bank has long required customers arbitrate disputes, a spokeswoman said.
But language specifically waiving a consumer's right to join a class action is less common. Starbucks Corp., for instance, requires its prepaid rewards card holders to forgo class actions and travel to Seattle to arbitrate their claims, unless the company agrees to another location.
Advocates of arbitration say it's a more appropriate and fair way to resolve consumer disputes, many of which involve relatively small amounts of money.
"Arbitrators have the right to award punitive damages, and they do," said James Damis, administrator and founder of the Arbitration Service of Portland Inc., which will handle Umpqua claims. "It's just when they do, they don't go nuts."
Consumer advocates counter that arbitration favors companies by keeping disputes private, threatening consumers with higher costs and prohibiting courts from reviewing most rulings.
"Class actions have historically been an effective way of checking corporate malfeasance," said Delicia Reynolds, legislative director for the National Association of Consumer Advocates in Washington, D.C. "We're still struggling with the effects of the financial crisis. Now's not the time to let companies off the hook."
Consumer arbitration clauses often are tucked in the fine print of multi-page service contracts. While Wells Fargo and Chase prominently noted the new language, a letter accompanying Umpqua's new agreement from Calero did not highlight the change.
On Monday, Calero said the many versions of the agreements made it too difficult to point out the change. "We just couldn't do it this time around," he said.
Under Umpqua's new agreement, customers will have to pay $300 to $500 to file an arbitration claim with Damis' service. Arbitrators then bill at a cost of up to $200 an hour.
An arbitrator can order the losing party pay the winning party's arbitration costs. The loser can only appeal in court to allege bias or fraud in the process, but not to challenge the accuracy or reasonableness of an arbitrator's decision, Damis said.
Many states have tried to restrict arbitration agreements. But recent Supreme Court decisions have reversed one key limit and reaffirmed the practice.
In April, the Supreme Court ruled that the Federal Arbitration Act allows companies to prohibit consumers from arbitrating claims as a group, or a class. This month, the High Court backed a credit-card company's right to resolve complaints in binding arbitration.
The 2010 Dodd-Frank financial reform law allows the new Consumer Finance Protection Bureau to limit mandatory arbitration in banking. But it must first study the need for such regulations.
"The CFPB already has too much on its plate and insufficient time to focus on this relatively unimportant area," said Alan Kaplinsky, an attorney in Philadelphia who helps banks use such agreements.