Forced arbitration clauses buried in the fine print of financial contracts deny all of us our day in court and deprive us of the right to hold corporations accountable for breaking the law. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorizes the Consumer Financial Protection Bureau (CFPB) to study the use of forced arbitration clauses in consumer financial products or services contracts. It also allows them to ban the practice if it finds it is in the best interest of consumers to do so.
In December 2013, the CFPB released the preliminary results of that study. It found that forced arbitration clauses in consumer financial services contracts are used in many consumer transactions and impact tens of millions of Americans. For example, 99% of payday loan agreements in California and Texas include arbitration clauses in their agreements, and 92% of prepaid card agreements are subject to arbitration clauses.
The study also confirmed that forced arbitration provides relief to almost no consumers harmed by illegal or abusive practices in the financial services industry.
Another study released by the CFPB in March 2015 confirms the negative impact of forced arbitration for consumers while underscoring the benefits of class actions which deliver relief to millions of consumers with small dollar claims.
The CFPB study found:
- A majority of consumers are unaware of whether their financial contracts include forced arbitration clauses. Fewer than 7% of consumers covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
- Arbitrators overwhelmingly side with companies rather than consumers in forced arbitration
- Consumers recovered little, if any, financial relief in forced arbitration
- Arbitration is rigged against consumers; i.e., the American Arbitration Association (AAA) is the sole arbitrator for 84.5% of forced arbitration-subject mobile wireless subscribers and 100% of arbitration-subject prepaid cards.
So, if you or a loved one showed up to play a softball game, and the other team paid the umpires, do you think you would get a fair game? Obviously not. Arbitration is bad for consumers and should not be forced upon them as the price for doing business with anyone.