The Consumer Financial Protection Bureau (CFPB) released a study earlier this month that shows arbitration agreements restrict consumers’ relief for disputes with financial institutions because they limit class action suits.
Under Dodd-Frank, the CFPB is required to conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. Dodd-Frank restricted the use of arbitration agreements in mortgage contracts, and gave the CFPB the power to regulate their use in other consumer financial markets if the Bureau found such limitations to be in the public interest and for the protection of consumers.
The CFPB study examined arbitration clauses in six consumer finance markets: credit cards, prepaid cards, checking accounts, payday loans, private student loans and mobile wireless contracts. The findings from the markets studied include:
Tens of millions of consumers are covered by arbitration clauses, including up to 80 million consumers in the credit card market.
On average, consumers file approximately 600 arbitration cases and 1,200 individual federal lawsuits annually in the six markets studied. Forty percent of the arbitration filings involve a debt dispute. Approximately one-third of the individual arbitration cases resulted in relief and debt forbearance for consumers.
Approximately 32 million consumers are eligible for relief via consumer finance class action settlements annually.
Arbitration clauses can act as a barrier to class actions. The report found it was rare for a company to attempt to force an individual lawsuit into arbitration. It was more common for companies to invoke arbitration clauses in order to block a class action suit.
There is no evidence that arbitration clauses lead to lower prices for consumers.
75% of credit card consumers surveyed were unaware they were subject to an arbitration clause.
Based on the CFPB press release on the study, the Bureau may be foreshadowing future rulemaking that will not be favorable to the financial industry’s use of arbitration agreements in consumer contracts.
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