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CFPB releases Study on Mandatory Arbitration Clauses in Consumer Contracts

The Consumer Financial Protection Bureau recently released a study regarding mandatory arbitration agreements in consumer contracts. (For a shorter explanation of the study, you can refer to the CFPB’s Factsheet.) Arbitration is a process by which disputes are resolved, often in private, with arbitrators making a decision on the case rather than a jury of your peers. The CFPB found that while mandatory arbitration agreements were rarely enforced against individual consumers seeking to resolve a dispute through the court system, they were used to block class action lawsuits.  This is important because historically class actions provide relief to more consumers, by far.  The CFPB found that between 2010-2012, in the markets it studied, less than 3,500 individuals filed lawsuits in federal court to resolve financial related disputes.  Yet, during that same time period, millions of consumers’ interests were represented in financial related disputes through the filing of class action lawsuits.

In surveying consumers on what factors they consider when determining what credit card to open, not a single consumer indicated that they considered whether the card agreement contained a mandatory arbitration clause. The CFPB found that 3 out of 4 consumers did not even know whether their current credit card was subject to a mandatory arbitration clause.

The ability to address wrongdoing through class action lawsuits is a valuable tool in the American consumers’ arsenal. Being a member of a class action lawsuit requires almost no time commitment for most members of the class, while providing relief to a large swath of aggrieved consumers. Class actions can also go a long way towards correcting bad behavior.  Understanding whether a financial product such as a credit card, bank account or loan, will prevent your access to redress through the court system should be something every consumer considers before agreeing to use that financial product.

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