Washington Mutual Mandatory Arbitration Clause - WAMU Falls Short
by Cyrus Dugger, Wed Jan 03, 2007 at 08:23:26 AM EST
Yesterday I opened an account with Washington Mutual. I've always sort of hated Bank of America. When I've had questions about my account or an online banking issue they have not been super helpful, and they charge me for my checking account. Moreover, for a long time (although no longer) Washington Mutual gave free access to their atms, and so I just grew to like them (as was likely the intended purpose).
Bank of America also employs a practice that seems geared towards increasing overdraft fees.
As succinctly explained on Wikipedia:
Excessive overdraft fees
In 1999, a class action lawsuit was filed against Bank of America for engaging in the practice of "Biggest Check First" check-clearing. Put simply, the bank clears checks and ATM/debit card transactions in order from biggest to smallest, with less regard to what time they come in during that business day. The lawsuit claimed that this is done on purpose: that the bank is manipulating the order of transactions to trigger more overdraft fees to collect.
Customers cannot avoid these fees by avoiding use of written checks; the bank employs the same practice for ATM and debit card transactions. Compounding the issue, the bank authorizes transactions in such a way that one debit card purchase - with funds that were available at the time of purchase - can trigger multiple overdraft fees.
When customers make debit card purchases through any modern bank, the charge is immediately deducted from their available balance. Technically, this is just a hold on the funds; the charge is not deducted from the actual, current or posted balance until the merchant settles the transaction with the bank. At Bank of America, if the merchant does not settle within three business days, the funds are once again made available for spending. Thus, the same money can be spent twice. When the merchant does settle the transaction, these funds are again deducted, even if this overdraws the account, which can result in an overdraft fee.
Here's an example: A customer has $100 in her account. On Tuesday, using her debit card, she buys coffee for $3, a small amount of gas for $15, and $25 worth of groceries. The $43 she spent is immediately deducted, and her available balance decreases to $57. If the merchants with whom the customer made the Tuesday purchases fail to settle the transactions before Friday, the $43 shows up on the account as available, bringing her account back to $100. On Saturday she withdraws the $100 from an ATM. As of Sunday night, her account shows exactly $0 remaining available. On Monday evening, all of the merchants with whom she has made purchases the prior week settle their transactions.
When the customer checks her statement Tuesday morning, she finds three overdraft charges, for the three purchases on the prior Tuesday. The customer is naturally confused, as she had not overdrawn her account for any of these transactions when she made them on that day. However, because all four transactions clear on Monday, and the bank clears biggest items first, Tuesday's purchases are all listed after the $100 ATM withdrawal that occurred four days later. The customer is charged three overdraft charges total, instead of one or none.
So there's not much positive about Bank of America, so I'm pretty happy to leave. However, as an intrepid civil justice fellow, even after hating Bank of America, when I was handed my Washington Mutual banking contract I had to check for the infamous and predictable mandatory arbitration clause.
And of course, there it was in section 4:
"Most disputes arising under this Agreement related to accounts or services hereunder are subject to mandatory binding arbitration. Rights to trial by a judge or a jury are waived hereby. Bank must be notified by Depositor of claims and proceedings to enforce any such claims must be brought, within the time requirements established in the Account Disclosures and regulations."
There are likely to be further details about the contours of this binding mandatory arbitration requirement in other documents that I have not yet read or received.
Now you may think that it is actually impossible to have any meaningful dispute with your bank. Banks' businesses is keeping your money and your business with them, so it's unlikely that you'd ever have had cause to exercise your "rights to trial by a judge or a jury" anyways.
But what if your bank lost your check?
This exact thing is what put me over the edge with Bank of America. One day I cashed a check for $1000. The check posted to my account and was then reversed a day or two later. I called Bank of America and said hey.... ahhh where did my check go? They replied, in a variety of ways, that they didn't know (implying that it was "lost"), but were sure that it would turn up again. Aside from wasting my time and being unapologetic, they then credited my account a temporary reimbursement, then added my original check (after having posted and then un-posted it before) a week later and then left the double credited amount in my account for like three weeks until I called in about something else at which point they were like yeah we gave you too much money and reversed it again.
Now aside from the inconvenience and uncertainty caused by having $1000 added to and subtracted from my account five times, you've got to ask yourself what if they just lost my check. With a mandatory arbitration clause ( I don't have my Bank of America contract in front of me but let's assume that they have one) you'd be forced to pay money just to be able to take any legal action against the bank, and then have to pay your legal fees on top of that. Moreover, you'd have to do so in forum that is often biased towards the business parties that the provide arbitration companies that are charged with the resolution of these controversies with their arbitration business.
Now $1000 dollars is a lot of money, but imagine if it were $10,000 or $100,000, or was related to your mortgage. You'd have no legal recourse until submitting to mandatory arbitration.
As has been made clear in previous posts on Tort Deform, this one sentence:
"Rights to trial by a judge or a jury are waived hereby."
What can you do about this issue? Well right off the bat whenever you talk with a company that provides you with a service, always ask them if they have a mandatory arbitration clause and express your interest in removing them. If enough people show enough concern about this issue, it can become a competitive business advantage to be "mandatory arbitration free" in the same way that being environmentally friendly can be good public relations for businesses that normally pollute.