CFPB Launches Study Into Mandatory Arbitration, Bringing Discussion To Congress

01/17/2013 // San Francisco, CA, USA // Keller Grover LLP // Carey Been // (press release)

San Francisco, CA — The growing use of mandatory arbitration has become a hot topic among businesses and consumers, which has led the debate all the way to Congress, with billions of dollars potentially at stake, reports Bay Area consumer protection attorney Carey Been.

Like many issues brought to Congress, a government agency has been given the task to study arbitration, causing both financial institutions and consumer groups to lobby to influence the study’s design, reports the American Banker.

The study is expected to widely influence implementation of the Dodd-Frank Act, which would give the Consumer Financial Protection Bureau the authority to regulate the use of arbitration. But lawmakers are waiting until the outcome of the study before enacting any changes.

The Consumer Financial Protection Bureau (“CFPB”) has been handed the task of studying the use of arbitration agreements by banks and other providers of consumer financial products, and everyone has something to say on how it should be conducted.

The first insight into arbitration was released in late November by Pew Charitable Trusts, which found that “Consumers overwhelmingly want a choice between court and arbitration.” Sixty-eight percent of people surveyed believe that aggrieved consumers should get to choose between filing suit and going before an arbitrator, while 21 percent believe arbitration should be mandatory.

The Pew study also revealed that slightly more than half of the nation’s 50 largest banks and credit unions have mandatory arbitration clauses in their checking account agreements.

Furthermore, the study found “strong opposition to certain aspects of arbitration clauses, such as the right of the financial institution to choose the arbitrator. Implicitly, the survey served as a rejoinder to a 2005 poll that has been cited by financial institutions as showing strong support for arbitration among consumers who have been through the arbitration process,” the American Banker reported.

While the Pew study found that the overall attitude was that arbitration should come with stricter rules, Pew did not offer any recommendations.

Banks assert that arbitration offers a cost efficient alternative to resolving disputes in a courtroom. They also contend that consumers typically fare better in arbitration.

But, because of the financial institutions’ practice of weaving arbitration clauses into their contracts, consumers have a much harder time pursuing and winning a claim, consumer protection lawyers maintain.

Financial backers and lobbyists argue that the Pew survey is misleading and was designed in a way that misrepresented how the arbitration system works. But industry observers revealed that they have been relatively pleased at the CFPB’s current efforts and outcomes.

The CFPB has not publicly revealed the scope and structure of its study, nor has it said when the study will be completed.

Click here to read more on the topic of mandatory arbitration: Mandatory Arbitration: What You Should Know & How To Protect Yourself

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