On March 10, 2015, the Consumer Financial Protection Bureau ("CFPB") released a report which found that arbitration clauses restrict a consumer's relief against financial service providers, such as credit card companies and banks. Each year millions of consumers are eligible for relief through class action settlements and the report determined that when defending against a class action lawsuit, financial service providers are more likely to enforce these arbitration clauses. Since very few consumers seek relief through arbitration or litigation individually, the CFPB concluded that arbitration clauses, and the manner in which they are selectively enforced by credit card companies and banks, limit a consumer's right to relief.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank Act"), the CFPB was required to conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Dodd-Frank Act gives the CFPB the power to issue regulations on the use of arbitration clauses in the consumer finance market if it would be in the public's interest or for the protection of the consumer.
A public inquiry on arbitration clauses was launched in April 2012 followed by the release of preliminary research in December 2013. In his prepared remarks to Congress at the Field Hearing on Arbitration, CFPB Director Richard Cordray characterized arbitration clauses as "take it or leave it clauses" that suppress the legal rights of consumers.
For the study, the CFPB relied on empirical evidence, including consumer contracts and court data, to understand the manner in which consumer finance disputes were resolved in both arbitration and litigation.
The CFPB reviewed nearly 850 consumer finance agreements and more than 1,800 consumer finance arbitration disputes as well as more than 3,400 individual federal court lawsuits filed over a 3-year period. The CFPB also reviewed 42,000 credit card cases filed in small claims court in 2012 as well as roughly 420 federal consumer financial class action settlements and over 1,100 state and federal public enforcement actions over a 5-year period. One thousand consumers with credit cards were also surveyed over their knowledge and understanding of arbitration and other methods of dispute resolution. The report found:
- Arbitration clauses cover tens of millions of consumers.
- On average, roughly 600 arbitration cases and 1,200 individual federal lawsuits were filed per year from 2010 – 2012.
- On average, roughly 32 million consumers are eligible for relief through consumer finance class action settlements each year.
- Arbitration clauses can be used to block class actions.
- No evidence that arbitration clauses lead to lower prices for consumers.
- 75% of consumers did not know if they were subject to an arbitration agreement.
According to Director Cordray, now that the study is complete, the CFPB will consider what "next steps are appropriate." The CFPB has already found an ally in the Senate. Shortly after the CFPB released its report, Senator Al Franken, D-MN, announced that he will reintroduce the Fair Arbitration Act with House Representative Hank Johnson, D-GA. The bill proposes to give consumers options for resolving disputes with financial service providers.
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