New study finds arbitration agreements are widely misunderstood by consumers

by MPA11 Mar 2015
The Consumer Financial Bureau released a study this week reading that arbitration agreements restrict consumers’ relief for disputes with financial services providers by limiting class actions.

In the consumer finance markets that were studied, very few consumers individually seek relief through arbitration or federal courts, meanwhile millions of consumers are able to receive relief each year through class action settlements. In the report, it was also found that more than 75 percent of consumers surveyed did not know they were subject to an arbitration clause in their agreements with their financial service providers. Fewer than 7 percent of consumers covered under arbitration clauses realized restricted their ability to sue.

Arbitration is a way to resolve disputes outside a court setting. Recently, more financial service providers have chosen to include a clause for arbitration in their agreements with their consumers. It requires the consumer to settle a dispute through arbitration rather than through the court system. This usually blocks any grounds for a lawsuit.

In the credit card market, for example, this type of clause affects as many as 80 million consumers.

Between the years of 2010 and 2012, across six different consumer finance markets, 1,847 arbitration disputes were filed. In the 1,060 cases that were filed between 2010 and 2011, consumers were awarded a combined total of less than $175,000 in damages and less than $190,000 in debt forbearance.

The report by the Bureau also stated that three out of four consumers surveyed did not know they were subject to an arbitration clause. Over three quarters said they did not know whether their credit card agreement contained an arbitration clause.  Among those whose contract included a clause, less than 7 percent acknowledged that they could not sue their credit card issuer in court.

“Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact,” said CFPB Director Richard Cordray.


Should CFPB have more supervision over credit agencies?