CFPB May Reform Mandatory Arbitration Clauses in Credit Card Agreements

March 9, 2015, Written By John H. Oldshue
Law gavel on a stack of American money

The Consumer Financial Protection Bureau may issue a report this week on how limited consumers are when they want to take action against their credit card company, according to the Washington Post.

The current system of mandatory arbitration prevents customers from filing class action lawsuits against card issuers, limiting the consumer’s right to retribution. The CFPB may make changes in this area.

Under mandatory arbitration, credit cardholders are forced into an arbitration process to resolve their conflicts, which is essentially a negotiation between the consumer and the card issuer. The problem is that most arbitrations are set up to work in favor of the company, leaving consumers with little compensation for their losses.

Most mandatory arbitration clauses are hidden in the fine print of credit card contracts. They are also used for payday loans and auto loans.

The credit card issuers believe that limiting the amount of litigation allows the issuer to charge less fees to the consumer. Thus, opening the doors to class action lawsuits would raise interest rates, transaction fees and other fees for consumers. Advocates of the mandatory arbitration process also say that many consumers find arbitration less intimidating than filing a lawsuit.

The CFPB has been studying these arbitration clauses for several years. In 2013, the Bureau found larger institutions were more likely than community banks or credit unions to use arbitration clauses in consumer contracts for credit cards or checking accounts. They also discovered that nearly 9 out of 10 arbitration clauses prevent consumers from filing class arbitration.

The CFPB report may limit the way companies can use mandatory arbitration clauses in their contracts.

The Bureau is expected to hold a field hearing about mandatory arbitrations tomorrow.



The information contained within this article was accurate as of March 9, 2015. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.