updated 12/15/2009 5:57:03 PM ET 2009-12-15T22:57:03

Bank of America Corp. said Tuesday it has tentatively agreed to drop a clause from its credit card contracts that requires disputes with customers to be handled through binding arbitration rather than through the courts.

Bank of America agreed to the change under a tentative settlement that's subject to court approval. The agreement came in a four-year-old federal lawsuit in New York City that also involves other major banks named in the complaint.

One of those banks, JPMorgan Chase & Co., reached a similar tentative settlement last month. If approved, the settlements with Bank of America and JPMorgan Chase would not release claims against other banks such as Capital One and Citibank that are defendants in the lawsuit, a class-action brought on behalf of cardholders.

Bank of America's tentative settlement comes four months after the Charlotte, N.C.-based bank said it would stop enforcing the arbitration requirement in credit card agreements with existing customers.

Under the settlement announced Tuesday, Bank of America agreed to go further by removing arbitration clauses from consumer and small business card holder agreements for at least three and a half years, Shirley Norton, a bank spokeswoman, said in a prepared statement.

The settlement with the Philadelphia-based law firm Berger & Montague would also formalize the bank's earlier agreement not to enforce any such restrictions in agreements with existing card holders.

Bank of America also would pay $600,000 in attorney's fees under the settlement, Norton said.

The bank denied any liability or wrongdoing, and "believes it fully complied with all laws," Norton said.

Berger & Montague's lawsuit alleges that major banks conspired to require their card customers to resolve disputes in arbitration, including debt collections.

Banks say arbitration is less costly for everyone than litigation as a forum for resolving disputes. They also argue that banks' increased legal costs would in turn be passed on to consumers. But consumer groups have criticized arbitration as tilted in favor of banks. Many consumers are unaware that card agreements typically include a clause that waives a card holder's right to sue.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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