In its latest study of forced arbitration, the Consumer Financial Protection Bureau (CFPB) confirms what consumers and consumer advocates have long said about this practice: it is a private dispute system stacked against individuals seeking justice. AFR applauds the release of the CFPB’s report, and urges the Bureau to move forward swiftly with rulemaking to prohibit forced arbitration in consumer financial contracts.
Forced-arbitration clauses have become ubiquitous, affecting tens of millions of consumers, including about half of all credit-card holders and between 80 and 90 percent of those with prepaid cards, private student loans, and payday loans. These clauses are typically buried in the fine print of take-it-or-leave it agreements. Seventy-five percent of the consumers involved have no idea that they are giving up their ability to go to court, the CFPB found.
The CFPB’s data refutes financial industry claims that giving consumers access to the court system raises costs. In its examination of financial companies that dropped their arbitration clauses, the CFPB found ‘‘no statistically significant evidence” that customers experienced increased prices or reduced access to credit.
The CFPB study clearly states that forced arbitration insulates companies against being held accountable for rip-offs that affect large numbers of people. Over 90 percent of contracts containing arbitration clauses explicitly prohibit class-actions, according to the CFPB study; and when consumers are forced to pursue their grievances one by one, it turns out that very few pursue them at all. Between the years 2010 and 2012, the Bureau found, an average of only 33 consumers a year sought arbitration in cases involving $1000 or less.
With the release of this study, the CFPB now has the legal authority to prohibit the use of forced-arbitration clauses in consumer finance markets. The CFPB’s research makes a compelling case for the Bureau to do so.