Consumer Financial Protection and Arbitration Clauses

Consumer Financial Protection and Arbitration Clauses

Why we need consumer financial protection and arbitration clauses

As consumers, we sometimes need a legal means of keeping corporations in check and considering our best interests as well as their bottom lines. That’s why having consumer financial protection and arbitration clauses are so important.

In the world of class actions (and, more generally, contract law) an arbitration clause is a term of a contract that requires the parties to resolve their disputes through an arbitration (read: non-litigation) process. If enforceable, these clauses effectively eliminate a consumer’s ability to bring a class action on behalf of a large group of consumers. Given the cost of legal representation, arbitration over a small amount of money that you believe was wrongfully charged is almost never economical. Without the ability to bring a class action for these small but improper fees, companies can continue nickel-and-diming consumers without any real consequence.

An extensive study of arbitration clauses

Earlier last year, the Consumer Financial Protection Bureau published the first extensive study on arbitration clauses in six consumer finance markets: credit cards, checking accounts, prepaid cards, payday loans, private student loans, and mobile wireless contracts.

Its findings were startling and unequivocal: arbitration agreements limit the ability of millions of consumers to recover for consumer finance disputes.

The primary counter-argument to class actions (and in favor of arbitration agreements) is that class actions cost good companies good money. As a result, these companies then have to turn around and pass these costs down to consumers.

However, the CFPB addressed this exact claim in its study. They found “no statistically significant evidence that the companies that eliminated their arbitration clauses increased their prices or reduced access to credit relative to those that made no change in their use of arbitration clauses.” Simply put, arbitration clauses do not raise prices.

Arbitration for legitimate disputes

Now, just to be clear: this is in no way to disparage the good corporate citizens out there. They are, by far, more prevalent than the bad actors. But sometimes there are legitimate disputes over a fee, a charge, or a business practice that affect a large group of consumers. And for a consumer to have to hire a lawyer, bring an arbitration action, and possibly be on the hook for costs, all in order to challenge a $4 fee… This is all contrary to the purposes of Civil Rule 23, substantive consumer protection law, and common sense.

Hopefully, the CFPB finds it in the public interest to issue new regulations on the use of arbitration clauses. Without a strong class mechanism that cannot be sidestepped, there is no effective way for consumers to take an active role in keeping corporate bad actors in check.

If you think you may need legal representation for a potential class action, contact the expert attorneys at Dworken & Bernstein to discuss your options today!

In Lake County, call 440.946.7656

In Cuyahoga County, call 216.861.4211




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