CFPB Report Finds Forced Arbitration is Bad for Consumers
By Aidan O’Shea
A report released today by the Consumer Financial Protection Bureau has found that forced arbitration clauses – language in consumer contracts that pushes any customer dispute out of court and into a private, secret, and often expensive arbitration process – are ubiquitous, not understood by those agreeing to them, and bad for consumers.
As the CFPB report explains, the evidence shows that although tens of millions of Americans use financial products or services subject to forced arbitration, three out of four consumers could not say whether they had agreed to an arbitration clause when surveyed about the issue. The report also notes that there is no evidence that arbitration clauses lead to lower prices for consumers, a key claim made by businesses that employ forced arbitration.
The CFPB also found that it is common for arbitration clauses to include a provision blocking consumers from acting as a class, whether in arbitration or in court, a significant fact given that consumers are “unlikely” to bring a claim against a company on their own, and that “roughly 32 million consumers on average are eligible for relief through consumer financial class action settlements each year.”
Speaking as part of a panel discussion at the CFPB’s field hearing on the issue of forced arbitration in Newark, N.J. today, Public Justice Executive Director Paul Bland said that the CFPB report “shows that Corporate America has been lying to the public about forced arbitration.
“The CFPB has found overwhelming empirical evidence to suggest that forced arbitration keeps consumers from being able to protect themselves.”
Bland added that the “CFPB should forever change the view that forced arbitration is good for consumers” by prohibiting companies from inserting forced arbitration clauses in consumer contracts to the greatest extent possible.
This call was echoed by fellow attorneys and consumer advocates in attendance.
The CFPB’s study has been three years in the making, and was produced after an exhaustive examination of 850 consumer-finance agreements, 1,800 consumer-finance disputes filed in arbitration, 560 class-action consumer financial lawsuits, and 3,500 individual federal court lawsuits in product markets including credit cards, checking accounts, prepaid cards, payday loans, private student loans, auto loans, and mobile wireless third-party billing.
At the CFPB field hearing, Bland concluded his remarks by focusing on the human cost to customers who’ve had no choice but to agree to an arbitration clause:
“Consumer financial laws matter. Bait and switch scams ruin lives,” he said. “When companies violate these laws and can’t be held accountable, people drop right out of the middle class.
“This study changes everything. The CFPB can and should use its authority to turn things around.”