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Consumer Financial Protection Bureau (CFPB) Finds Forced Arbitration Clauses Harmful

Thursday, December, 19, 2013


After years of debate regarding both the legality and fairness of required arbitration clauses in agreements between customers and financial houses that deny consumers the right to join class actions, the Consumer Financial Protection Bureau has concluded a year-long study on the matter that has determined that such clauses do in fact deny consumers an important route to resolve disputes.  The report also cites evidence that arbitration in financial management and financial product cases does not provide recovery of lost assets to the wide majority of consumers.


The study shows that of the tens of millions of customers forced into mandatory arbitration as a result of their agreements with banks, credit cards, or other lenders, only 1,241 cases were filed with the American Arbitration Association from 2010-2012.  The study notes that in similar disputes involving credit cards or other lenders that went to class actions, over 13 million consumers received payments from awards totaling more than $350 million.  When compared to 900 people filing arbitration complaints, these numbers seem telling.


The U.S. Supreme Court ruled that arbitration agreements supersede consumer protection laws as they are legal agreements entered into without duress, but many people argue that there is in fact duress, as consumers will be denied often necessary financial products if they do not agree to the arbitration terms.  The CFPB findings are expected to cause credit card companies to adjust their arbitration clauses just as it compelled mortgage lenders to a few years ago