The CFPB released a study indicating that arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions. The report found that, in the consumer finance markets studied, very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements. The report also found that more than 75% of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers, and fewer than 7% of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
Arbitration is a way to resolve disputes outside the court system. According to the CFPB, in recent years, many contracts for consumer financial products and services have included a “pre-dispute arbitration clause” stating that either party can require that disputes that may arise about that product or service be resolved through arbitration instead of the court system.
The Dodd-Frank Act mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Act specifically prohibits the use of arbitration clauses in mortgage contracts. And it gives the Bureau the authority to issue regulations on the use of arbitration clauses in other consumer finance markets if the Bureau finds that doing so is in the public interest and for the protection of consumers, and if findings in such a rule are consistent with the results of the Bureau’s study.
CFPB Director Richard Cordray noted: “Now that our study has been completed, we will consider what next steps are appropriate.”
As we reported yesterday, the CFPB will hold a field hearing on the topic this afternoon in Newark, NJ.
Read the full report.
View a fact sheet on the report.