CFPB Arbitration Study Preliminary Results

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) requires the Consumer Financial Protection Bureau (CFPB) to study the effects of consumer finance arbitration clauses. These are contract clauses that require any future disputes between consumers and companies to be resolved through private arbitration, rather than in court. Consumers are required to accept these clauses in “take-it-or-leave-it” contracts for financial products or services.

Attached is a link to the first of a series of preliminary reports on this subject by the CFPB. This report analyzes credit card, checking account, and prepaid card contracts. Dodd-Frank authorizes the CFPB to “prohibit or impose conditions on the use of” these arbitration clauses, if it finds such action “is in the public interest and for the protection of consumers”.

U.S. state and federal courts have given corporations great power to impose arbitration requirements on consumers. The effect of Dodd-Frank might be to limit some of that corporate power. I will report on the CFPB’s future findings and recommendations concerning mandatory arbitration clauses in consumer finance contracts.

This initial CFPB report analyzes the available data about 1) how often arbitration clauses are required in consumer finance contracts, 2) the typical rules for arbitration required by these clauses (including arbitration fees paid by consumers), 3) what types of companies or organizations require arbitration contract clauses, 4) the frequency with which arbitration is used, 5) the nature of the parties that use arbitration, 6) the types of disputes that arbitration is used to resolve, and 7) the frequency and nature of small claims court litigation, which arbitration clauses often allow to proceed in place of arbitration (although not necessarily to help consumers).