Can Arbitration Solve Your Beef With the Bank?

Just say "mandatory arbitration" a couple of times. It may make you feel a little drowsy. But if you ever find yourself in a dispute with your bank or other financial services provider, those two words could determine your chances of successfully resolving it.

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Mandatory arbitration clauses are bits of legalese inserted into customer agreements for checking accounts and other financial products, requiring customers to settle disputes with the bank through an arbitrator rather than the courts.

A 2012 study by the Pew Charitable Trusts' Safe Checking in the Electronic Age Project found 66% of checking account agreements at the nation's largest banks had mandatory arbitration clauses tucked away inside. Even if the customer agreement allows you to use the court system to challenge your bank, you'll probably still find some restrictions. Of the banks surveyed, a whopping 98% had clauses waiving a jury trial; 32% had clauses requiring customers to pay some or all legal losses, costs and expenses.

"We found that all the banks restrict consumers from options to resolve their disputes," says Susan Weinstock, project director for Pew's Safe Checking in the Electronic Age Project.

If a majority of large banks forcing consumers into mandatory arbitration seems like a minor point, it's not. There are significant differences between arbitration and trials conducted in the court system, Weinstock says.

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