Chase Bank/JP Morgan Chase recently added a provision to their terms for cardholders about arbitration. So customers are receiving notices about this change, but at the bottom of the notice, it says you may reject this agreement to arbitrate if you notify them before XX/XX/XXXX day.
Does that literally mean customers can just say "no" and that provision won't apply to them? Are they required to give that option do to legally binding existing cardholder agreements?
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 cardholder agreements?
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.
Some locations have rules or laws regarding whether you can force someone into arbitration. That sentence is meant to give you the right to opt out of it so the bank can comply with those laws.
