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Bank Arbitration Clause Restricting Consumer Class Actions Upheld by U.S. Court of Appeals
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On Thursday, the Atlanta –based U.S. Court of Appeals for the 11th Circuit overturned a 2010 ruling of the district court and upheld that a bank contract clause prohibiting account holders from being part of a class action against the bank, but go for mandatory arbitration in case of disputes, is enforceable.

The judgment has wide implications on banking practices and consumer rights of account holders.

In a question of law querying the validity of a class action suit filed by account holders against the SunTrust Banks, SunTrust had argued that the contract the bank had with its customers required customers to resolve disputes individually in private arbitration.

  
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The argument on part of the plaintiffs was that the mode of signing the contract did not leave customers with a choice when giving up their rights of bringing class-action suits. Also the arbitration policy that required customers to foot the legal bills of the bank in case of the company winning the arbitration discouraged account holders from disputing infringement of their legal rights.

The major decision in context of such arbitration clauses that reduced choices of the victims of big business occurred when the arbitration clause in AT&T Mobility’s customer phone contracts was upheld by the Supreme Court in April 2011. That set the path for companies to avoid class-action by enforcing service contracts requiring customers to waive their rights of class-action.

The recent judgment of the Appeals court is in line with the earlier judgment of the U.S. Supreme Court on a similar issue.
In the three-judge panel decision, the U.S. Court of Appeals mentioned that for an arbitration clause to be held invalid on fairness grounds, “a contract must be so one-sided that no sane man not acting under a delusion … would participate in the transaction.”

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The original legal dispute was about SunTrusts Bank manipulating the sequence of the checking accounts of customers in order to charge excessive overdraft fees.

While the judgment seems sound from the point of legal mumbo jumbo and based on precedents and established jurisprudence, it is also true that with changing times, factors that had low priority in previously established jurisprudence can change priority. Under present circumstances, the personal economy or financial ability of a plaintiff has become a major social factor in deciding individual choices. The question remains whether the fairness of an arbitration clause should only be decided on the “sane man” approach, or whether “sane man in such an economic position,” can also enter the equation while deciding citizen’s rights.



It is also mentionable that even in underdeveloped countries which have their legal system roots in Roman law, English Common Law, and jurisprudence, any part of a private contract that requires a citizen to give up his/her rights to sue is held null and void to the extent of that part.



 

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