CFPB Study Verifies the Need for Arbitration Clause Reform
The Consumer Financial Protection Bureau has released a study that verifies just how important it is for the government to reform mandatory arbitration clauses in credit card agreements. The study shows 75% of consumers are unaware of the arbitration clauses from their financial service providers, and less than 7% understood how these clauses limit their abilities in court.
The CFPB reports that “tens of millions of consumers are covered by arbitration clauses,” covering six different finance markets: credit cards, prepaid cards, payday loans, checking accounts, private student loans and mobile phone contracts. 53% of credit card issuers have arbitration clauses in their contracts, while only 8% of banks and credit unions use these clauses for their checking account agreements.
The study revealed only about 600 arbitration cases are filed per year, with more than 20% of the cases coming from financial institutions. Comparably, an average of 32 million consumers are eligible for relief through class action settlements each year.
That number could skyrocket in the coming years as a result of the widespread data breaches in America in 2013 and 2014. In the Target breach alone, more than 110 million victims were given permission to file class action lawsuits against the company for their security flaws.
Richard Foster, Senior Vice President of Legal and Regulatory Affairs for Financial Services Roundtable, released a report saying, “Arbitration makes it possible for American consumers to resolve disputes in a cost-effective, fair and timely manner that often benefits all parties involved. This is an important tool for the customers of financial institutions that helps keep costs down and keeps financial products, including credit cards and checking accounts, affordable.”