Three-and-a-half-year-old case continues to win industry reforms nationwide to protect credit card holders in debt disputes
SAN FRANCISCO (August 22, 2011) — City Attorney Dennis Herrera today announced a major settlement agreement with the credit card subsidiary of the nation’s largest bank, Bank of America, in his three-and-a-half-year-old litigation against a so-called “arbitration mill,” which banks engaged to virtually assure they prevail over their credit card holders in binding arbitration proceedings. Herrera’s suit sought injunctive relief and penalties. The settlement secures $5 million for City taxpayers, and imposes tough, enforceable protections for California’s credit card holders in their debt disputes with FIA Card Services.
Under the terms of Herrera’s settlement noticed with the San Francisco Superior Court today, FIA will make a one-time settlement payment in the amount of $5 million, and agree not to arbitrate consumer credit card collections in California for two years. The credit card subsidiary has also agreed to not use the National Arbitration Forum in arbitrations with its card holders for at least five years, and to refrain from enforcing unconfirmed arbitration awards obtained through NAF, which was among the nation’s most notoriously anti-consumer arbitrators when Herrera filed his litigation in March 2008. FIA is also prohibited from barring consumer class actions challenging FIA’s practices. Herrera won a preliminary injunction against FIA early in his litigation, in April 2008, to halt the company’s practice of disclosing Social Security numbers and other private information of its customers in publicly available court records in San Francisco.
“This is a very significant settlement — not just because of its blockbuster dollar amount, but because it’s another milestone in a case that has helped reform the credit card industry’s abusive practices,” said Herrera. “For most consumers in debt disputes, binding arbitration was a sham that never gave consumers a chance — and major banks knew it. Credit card holders were often also victimized by outrageous attorneys’ fees and costs, which were illegally tacked onto arbitration awards against them. I’m very proud of a public interest lawsuit that continues to send a powerful message to the financial industry, and that has caused even the nation’s largest financial institutions to reform their conduct.”
Herrera initially filed his litigation against FIA Card Services and the National Arbitration Forum in March 2008 for violations of California’s Unfair Competition Law. The litigation would soon after feature prominently in a BusinessWeek cover story entitled “Banks vs. Consumers (Guess Who Wins),” in June 2008, which relied on key facts from San Francisco’s case, including statistics showing that consumers prevailed in just 30 cases out of more than 18,000 arbitrations brought by businesses that went to a hearing — less than two-tenths of one percent.
In July 2009, the National Arbitration Forum announced that it would cease handling consumer credit card arbitration matters after a state attorney general followed Herrera’s lead in filing a separate consumer protection case. A month later, Bank of America agreed to drop its longstanding requirement that consumers with credit card disputes enter into binding arbitration. That change by the nation’s largest bank freed millions of credit card consumers from binding arbitration requirements, enabling them to pursue civil actions in neutral courts. Herrera’s case remains in active litigation with NAF, which his office continues to pursue for financial penalties and other relief.
The City Attorney’s case is: People of the State of California v. National Arbitration Forum, Inc.; FIA Card Services et al, San Francisco Superior Court No. 473-569, filed March 24, 2008.
PDF of the Bank of America FIA Card Services settlement presskit (Aug. 22, 2011)