PNC On Arbitration: Take It To The Supremes

For many banks, arbitration, which on its surface appears to be a viable economic alternative to litigation in customer-fee disputes, has turned out instead for many banks to create a litigation nightmare. As a result, many credit card issuers in particular have dropped arbitration clauses in their contract. But some banks, including PNC, continue to fight on for the cause.

Use of arbitration to settle disputes in lieu of litigation has itself bred its own share of lawsuits. While the U.S. Supreme Court has ruled arbitration a viable option to call-action lawsuits, banks and card issuers continue to use the court system to iron out arbitration disputes with customers.

In the latest example, PNC Bank NA reportedly has asked the U.S. Supreme Court to compel arbitration in a customer dispute over allegedly excessive debit card overdraft fees. It contends in what is part of a multidistrict litigation that the 11th U.S. Circuit Court of Appeals ruled wrongly that when the bank adopted a newer customer contract, it gave up its arbitration rights.

In a June 20 filing with the high court, PNC acknowledged that no arbitration clause exists in its latest account agreement with the plaintiffs in the dispute over the fees. (The case originally was filed against RBC Bank (USA), which since merged with PNC). In the bank’s view, Law360.com reported, the presumption favoring arbitration in the Federal Arbitration Act (FAA) means an arbitration clause in an earlier agreement should have allowed the right to arbitration through to the new contract.

“The 11th Circuit’s decision is in derogation of … fundamental principles of federal arbitration law,” PNC said. “Review should be granted so that other courts are not emboldened to flout the commands of the FAA and to prevent [its] opinion from encouraging the judicial hostility toward arbitration that the FAA was enacted to foreclose.”

PNC declined PYMNTS.com’s request for comment and an interview, saying it doesn’t comment on legal matters.

In June last year, a decision by the Supreme Court preserved the availability of arbitration as a viable, economic method for alternative dispute resolution, a concept that once led to various disputes related to credit card agreements issuers struck with their customers, often without clear notification or in alleged collusion with other issuers. Many issuers in particular, though, have removed such clauses from their contracts.

This past April, U.S. District William Pauley dismissed litigation accusing American Express, Citigroup and Discover Financial Services of colluding to require cardholders to enter into arbitration to settle disputes instead of class-action litigation. Cardholders in the case failed to show the issuers violated the Sherman Antitrust law by adopting the arbitration clauses in their cardholder agreements, Pauley ruled.

The case, which has gone on for about a decade, alleged that the defendants conspired in establishing the clauses between May 1999 and October 2003, when 10 card-issuing banks and their lawyers met 28 times to discuss how to impose mandatory arbitration clauses, according to Reuters.

In his 92-page decision, Pauley said his decision was a close call. “It was only by a slender reed that plaintiffs failed to demonstrate that the lawyers who organized these meetings had spawned a Sherman Act conspiracy among their clients,” the judge wrote.

In January 2011, the Supreme Court ruled that consumers who sign credit card contracts containing an arbitration clause cannot dispute charges in court.

In the PNC case, a customer in 2010 filed a class action against RBC, alleging the bank reordered customers’ debit card purchases at the end of each day to draw funds for larger purchases before smaller ones so it could trigger more overdraft fees. The court later consolidated the suit into the larger Checking Account Overdraft Multidistrict Litigation, which accuses more than 30 banks of similar manipulations of debit card transactions.

RBC push for arbitration, but a district court held that it could enforce the arbitration clause in a 2008 account agreement because it deterred the plaintiff from bringing his claim. RBC appealed, and on remand from the Eleventh Circuit filed a renewed motion for arbitration.

PNC’s parent PNC Financial Services Group Inc. acquired RBC in March 2012 while the renewed motion was pending, and PNC issued a new account agreement where arbitration wasn’t mentioned. The district court again denied arbitration to RBC, ruling the new agreement had replaced the 2008 agreement. The 11th Circuit in February upheld that decision, finding that state law governs whether a valid arbitration agreement is in effect, not the FAA’s presumption favoring arbitration.

The 11th Circuit’s decision clashes with four other circuit courts, which in similar cases found arbitration rights survive when parties enter a later contract without an arbitration clause, unless the later contract specifically waives those rights, PNC said.

“Because the FAA is grounded on the principle that courts cannot discriminate against arbitration, review should be granted so that courts are admonished not to violate this core tenet of the FAA,” the bank said.