March 10, 2015

CFPB says arbitration agreements stifle consumer relief

CFPB on Tuesday released a study noting that 32 million consumers are eligible for relief through consumer finance class action settlements each year, but arbitration agreements stifle class action lawsuits and, in turn, the relief available to consumers.

"Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact," CFPB Director Richard Cordray said.

The Dodd-Frank Act mandates that CFPB conduct studies on the use of pre-dispute arbitration clauses in consumer financial markets. Cordray said Congress specified that the results of this study would enable CFPB to issue important policy decisions in this area. CFPB released the preliminary results to this study in December 2013.

Arbitration is a way disputes can be resolved outside the courts. CFPB pointed out that in recent years, many contracts for consumer financial products and services include this "pre-dispute arbitration clause," meaning that either party can generally block lawsuits.

CFPB's study reviewed 850 consumer finance agreements to examine the prevalence of arbitration clauses. In the study, the bureau also examined 1,800 consumer finance arbitration disputes filed over a three-year period and more than 3,400 individual federal court lawsuits. Also reviewed were 42,000 credit card cases filed in selected small claims court in 2012.

The bureau also surveyed 1,000 consumers with credit cards about their knowledge of arbitration and reviewed related consumer finance lawsuits.

According to the CFPB report, consumers filed roughly 600 cases and1,200 individual lawsuits annually.