Earlier this week the Consumer Financial Protection Bureau (CFPB) released a study on consumer arbitration required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The statute prohibited the use of arbitration clauses in mortgages, and, in addition to requiring a study of pre-dispute arbitration clauses, gave the CFPB rulemaking authority over the issue. In a statement, CFPB Director Richard Cordray said, “Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact.”
The study analyzed consumer contracts and court data to examine the effects of arbitration across consumer financial service markets, including credit cards and checking accounts. The study found that few consumers use arbitration, and 75 percent of consumers were not aware of arbitration clauses in their financial agreements. Finally more than 90 percent of consumers with arbitration clauses did not realize that that they had restricted ability to bring a lawsuit. The CFPB also found that arbitration clauses did not result in lower prices for consumers.
Director Cordray said, “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year. Now that our study has been completed, we will consider what next steps are appropriate.” The agency will likely begin the rulemaking process later this year.
- CFPB Press Release: http://www.consumerfinance.gov/newsroom/cfpb-study-finds-that-arbitration-agreements-limit-relief-for-consumers/
- CFPB Study: http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf
- Cordray Remarks: http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-arbitration-field-hearing/