Consumer Financial Protection Bureau Considering Barring Arbitration Agreements That Restrict Consumers From Going to Court


Companies have been writing more and more contracts for both their customers and their employees, which require any disputes to be settled in arbitration. Companies prefer arbitration over court litigation because the company usually chooses and pays for the arbitrator. As a result, arbitrators generally tend to decide in favor of the company.

Arbitration also bars consumers and their employers from bringing class actions against the company. This is detrimental to the individual’s ability to attain redress for their claims, as many consumers and employees have small individual claims. On their own, they’re not worth the costs of bringing a suit to court, or even arbitration. Richard Cordray, director of the Consumer Financial Protection Bureau, stated that, “there are almost no disputes over amounts less than $1,000.” So, if multiple consumers suffered in the amount of $50 or $100 as a result of a company’s illegal actions, and the consumers are barred from filing a class action, then they have no way of getting compensation for their claims.

When combined, however, they may make a substantial sum, which not only might warrant bringing legal action against the company, but might also send a message to the company and to others that such conduct is wrong and punishable under the law.

Class actions also provide consumers and employees with greater leverage against large companies who are sometimes equipped a team of attorneys. An individual would have a difficult time finding and paying for sufficient representation against such a formidable foe. A class of plaintiffs on the other hand, is much more capable of attaining adequate representation.
Proponents of these arbitration agreements argue that they actually benefit consumers. For example, the U. S. Chamber of Commerce issued a letter to the federal bureau which said that “prohibiting or regulating arbitration would harm consumers more than it would benefit them. … Arbitration is at least as likely, and often more likely, than litigation in court to result in positive outcomes for consumers.”

Such assertions don’t hold up against the statistics, though. A report conducted by Public Citizen in 2007 found that, over a period of four years, in disputes between credit card companies and their consumers, arbitrators sided with the credit card companies 94 percent of the time.
Consumer advocates, on the other hand, have been arguing that any means used to deny people the right to sue or band together in class actions is unfair. The U. S. Supreme Court created much controversy when it ruled in 2011 that businesses such as phone companies, credit card issuers, and cable companies could not legally be barred from including arbitration clauses in their service contracts.

However, the Consumer Financial Protection Bureau also gets a say in the matter. According to the same financial-reform law that created the bureau in 2010, the bureau has the authority to “prohibit or impose conditions or limitations on the use” of arbitration clauses for credit cards, checking accounts, and other financial contracts.

While the federal bureau’s investigation into the legality of these arbitration agreements may mean relief for consumers, it looks like employees will have to wait. Although the National Labor Relations Board had reached a decision which barred arbitration agreements that prohibit class action suits over pay and hours, a federal appeals court recently overturned that decision.

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