CFPB finds small number of arbitration cases

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Dec. 13, 2013 – The CFPB, drawing on its research into arbitration clauses in contracts for consumer financial products and services, said Thursday that of the tens of millions of consumers under arbitration clauses, only an average of 300 choose to file disputes.

The study also found that arbitration clauses are “almost always more complex and written at a higher grade level” than other clauses in the contract, and that larger financial institutions are the most likely to include arbitration clauses.

The bureau also found that nine out of 10 bank arbitration clauses prevent consumers from participating in class action suits. It also found that “only a handful” of individuals who opt out of participating in class action settlements choose to file arbitration cases instead of bringing their own cases. CFPB is conducting a separate study on class action suits involving credit cards, deposit accounts, and payday loans.

The CFPB held a field hearing in Dallas on Thursday focusing on the findings of the study on the use of mandatory arbitration clauses, and featuring comments from CFPB Director Richard Cordray, consumer groups, industry representatives and the public.

The bureau is required by the Dodd-Frank Act to study mandatory arbitration agreements related to consumer financial products and services. The act also authorizes CFPB to prohibit or limit such agreements based on study findings.

At the field hearing, CFPB Director Richard Cordray said, “One significant takeaway from these various points is that few consumers use arbitration at all, at least when compared to the number of consumers involved in lawsuits and class actions. In the second phase of our study, we will seek to obtain a better understanding of what explains the incidence and nature of arbitration claims, including small-dollar claims. We will look to see what happens to arbitration filings and endeavor to compare what we see happening in arbitration to what we see happening in litigation, including class litigation.”

The study found “almost no” consumers filed arbitration cases for disputes about amounts less than $1,000. For arbitration filings related to debt, the average amount in dispute was $13,000.

Related Links:
CFPB study
CFPB Director Cordray comments