Does that literally mean customers can just say "no" and that
provision won't apply to them?
Yes. That is what it means.
Are they required to give that option do to legally binding existing
This is probably primarily an attempt to overcome a default ban on consumer arbitration clauses in New York State, which are prohibited by New York State law. New York State law matters because New York State law, rather than the Federal Arbitration Act (which does not require an opt out option) applies in transactions governed by New York State law which are not interstate transactions because Chase Bank/JP Morgan Chase which is based in New York State.
The Federal Arbitration Act (FAA) creates a strong national policy in
favor of enforcing arbitration clauses. The Act states that
arbitration clauses will be enforced in all cases where there is a
maritime transaction, or where a contract involves a transaction
crossing state lines.
However, in cases where the Federal Arbitration Act does not apply,
State law determines whether the arbitration clause is enforceable.
For example, some courts require that there be a contract for
interstate commerce for the Federal Arbitration Act to apply. Thus,
if a contract is not covered by the Federal Arbitration Act, State law
will determine whether the arbitration clause is enforceable.
Which State Will Decide If the Arbitration Clause Is Enforceable?
If the Federal Arbitration Act does not apply, it is then important to
determine which State's law applies. Jurisdictions use different
methods to determine which State's law to apply. The most common
choice of law methods that are used are:
The State where the contract was made
The State specified in the contract
The State where arbitration is specified by the contract to take place
The State that has the most significant relationship to the arbitration provision
Each State has different laws concerning the enforceability of an
arbitration provision. Many States' laws mirror the Federal
Arbitration Act and require the enforcement of arbitration clauses.
However, most States do allow for several exceptions to the general
mandate to enforce the arbitration provisions.
California, for example, allows arbitration clauses to be disregarded
if the parties agree to take out the clause, if the contract itself is
not valid, or if a party in the arbitration agreement is joined by a
third party in pending court action which arose out of the same
transaction or series of related transactions. Conversely, other
States, like New York, prohibit mandatory arbitration clauses from
being included in consumer contracts altogether.
Objections in California could also be a consideration. "As Professor Charlotte Garden writes in a recent paper on forced arbitration, California law arguably permits courts to strike down forced arbitration provisions if that provision is imposed without choice." This would be based on contract formation principles, in general, which are also not entirely preempted by the FAA.
An opt out option is pretty painless for the bank to offer since realistically, very few people pay attention to a notice allowing them to opt out within the narrow window of time allowed, and even those people who notice are unlikely to take action. The bank probably still ends up with 98%+ of its customers governed by an arbitration clause that is easier to enforce as a result. And, the group of people who are uptight enough to read the notice and take affirmative action to opt out are probably not members of the same group of people who are most likely to default on their obligations.