BofA credit-card unit settles lawsuit over collection practices

Bank of America Corp.’s credit-card unit agreed to pay $5 million and suspend arbitrations of consumer debt collections in California for two years to settle San Francisco’s lawsuit over its collection practices.

The agreement, filed Monday in state court in San Francisco, resolved a 2008 lawsuit alleging that Bank of America’s FIA Card Services unit used an arbitration service that was biased in favor of the bank and against consumers. The National Arbitration Forum Inc., based in Minneapolis, employed unfair business practices while administering arbitrations for consumers who owed credit-card debt to the unit, according to the lawsuit.

FIA agreed not to use the mediation service in arbitrations for five years or enforce unconfirmed arbitration awards obtained through the company, said San Francisco City Atty. Dennis Herrera. FIA is prohibited from barring consumers from suing the company as a group, according to the settlement.

“Both sides agreed to the settlement to avoid the costs and uncertainty of further legal action,” said Shirley Norton, a Bank of America spokeswoman.

Bank of America denies any wrongdoing, Norton said. The Charlotte, N.C., company discontinued mandatory arbitration for consumer credit-card disputes in August 2009 and hasn’t used National Arbitration Forum since then, she said.

The bank, the largest U.S. lender, also eliminated mandatory arbitration and requirements barring group lawsuits from consumer and small business credit-card agreements, Norton said.