The CFPB’s Arbitration Study, released this week, found nearly 75% of consumers surveyed were unaware whether the contracts they signed included an arbitration clause. Of the consumers surveyed, fewer than 7% actually understood that an arbitration clause would preclude them from suing the company.
Furthermore, the study determined that, in approximately 67% of the disputes, companies have used arbitration to protect against class action lawsuits.
Per the CFPB’s study, there was a significant difference in consumers’ monetary relief under arbitration versus class action lawsuits. Of the 1,060 financial product arbitrations filed in 2010 and 2011, consumers received $365,000 in damages from the companies, while the companies received $2.8 million from consumers. Conversely, in the last five years, approximately 160 million consumers have been awarded nearly $2.7 billion in damages resulting from class actions.
Mandatory Arbitration Usage
15.8% Credit Cards
7.7% Checking Accounts
92.3% Prepaid Cards
83.7% Storefront Payday Loans
85.7% Private Student Loans
87.5% Mobile Wireless
There are a number of options the CFPB could undertake if and when it enacts new rules related to the mandatory arbitration provisions. For example, the CFPB could choose to prohibit class action waivers which would prevent consumers from waiving away their right to join a class action suit. Further, the CFPB could prohibit arbitration clauses in general. While the CFPB has not yet issued any new rules in this regard, this study clearly signals the CFPB’s intention to focus on this topic.
PA-based Bridgeforce Law recommends credit card issuers and others using mandatory arbitration to get in front of the issue by mirroring the analyses that the CFPB has completed in this study and completing focused risk assessments within this area. The firm says on a tactical level, the CFPB study will cause financial institutions to revisit their consumer finance contracts.
Over 75% Bridgeforce consultants come directly from client-side leadership positions across multiple parts of the credit lifecycle.
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