CFPB Releases Report on Pre-Dispute Arbitration Clauses; Prepare to be Regulated
Seller Beware: Consumer Protection Insights for Industry
On Tuesday morning, the Consumer Financial Protection Bureau (CFPB) released a much anticipated report regarding the use of mandatory pre-dispute arbitration clauses in customer-service agreements. These clauses require consumers to arbitrate disputes instead of litigating them in court or as part of a class action. As an example, a consumer subject to an arbitration clause who wants to sue his bank over credit card charges he disputes must arbitrate instead of suing in court. The use of these clauses is fairly common in the consumer financial services sector, appearing in around half of credit card and checking account contracts, and substantially all contracts for prepaid cards, payday loans, private student loans and wireless third-party billing agreements.
The report, which clocked in at more than 700 pages, reached the following conclusions (amongst many others):
- Nearly all arbitration clauses surveyed contained a provision barring class actions.
- Consumers were generally unaware (i) of the arbitration clauses in their financial services contracts; and (ii) that some contracts permitted opt-outs from the arbitration clause.
- Claims brought in arbitration averaged $16,000. Very few cases were brought for $1,000 or less.
- Consumers received relief totaling approximately $400,000 in the approximately 1,000 arbitration cases filed in 2010 and 2011. By contrast, 32 million consumers were eligible for relief through class action settlements in each of those years, with average cash payouts to consumers totaling on average $220 million per year.
- Arbitration clauses did not result in lower prices for consumers.
This blog, as well as Arnold & Porter's in-depth advisories, will continue to track this area.
© Arnold & Porter Kaye Scholer LLP 2015 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.