The Consumer Financial Protection Bureau calls these clauses a “free pass” that allows lenders to wriggle out of responsibility if they mistreat customers.
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Now, the CFPB is looking to change that by beginning the long process of rulemaking to ban the practice. While that might be the case, the CFPB found that the clauses can act as a barrier to class actions and said that it found “no evidence of arbitration clauses leading to lower prices for consumers”.
Since these arbitration clauses are contained in a wide range of consumer financial products, the clauses affect tens of millions of consumers, according to CFPB.
While it is only a partial ban in writing, arbitration experts say that by allowing class action lawsuits to go forward, the CFPB’s proposal is in essence a de-facto ban on arbitration because the service, which is typically paid for by the bank, becomes less cost-effective.
Officials added that proposals under consideration would also require that companies that choose to use arbitration clauses for individual disputes submit to the CFPB the arbitration claims filed and awards issued. The data, which might be posted for public review, would help ensure the arbitration process is fair for consumers, the CFPB said.
“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card”, said CFPB Director Richard Cordray in a press release.
Companies use the arbitration clauses as their free pass to stay out of court and avoid any accountability due to wrongdoing, added Cordray.
“The proposal under consideration would prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts”, according to a news release from the CFPB.
Financial and business groups generally support arbitration as a more efficient and less expensive way of resolving disputes with customers. That’s because consumers usually have to sign agreements with lenders saying that disputes can only be resolved on an individual basis by a private arbitrator, rather than in court.
The clauses typically also block consumers from pursuing group claims through the arbitration process.
But banks got smart and began writing language into the contracts for all kinds of financial products that prohibited customers from joining class-action lawsuits. Bitcoin, a disruptive digital currency, offers users complete financial freedom and control at any time, regardless of where they are.
As a result, says the CFPB, no matter how many consumers are injured by the same conduct, consumers must resolve their claims individually against the company, which few consumers do.
In a March 2015 report, the CFPB said the AAA, which contributed data for the study, administers “the vast majority of consumer financial arbitration cases”.
An earlier study by the CFPB on the practice found that consumers regularly received far less through arbitration than a court challenge. But among approximately 1,000 credit card holders surveyed by the bureau, more than 75 percent did not know whether their own contract contained such a clause. Fewer than 7 percent of those consumers covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
However, consumer organizations contend that forced arbitration improperly limits customers’ options and potential recovery. Disputes that amount to small-dollar claims on an individual basis could deter consumers from taking any action at all.
Can you take your credit-card company, bank, wireless carrier or even dating site to court as part of a class action suit if you have a dispute?
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“The CFPB has concluded, quite illogically, that class actions need to be preserved despite the adverse effects on consumers, the very group they’re charged with protecting”, he said at the hearing. Arbitration clauses enable companies to avoid being held accountable for their conduct; that makes companies more likely to engage in conduct that could violate consumer protection laws or their contracts with customers.
