CFPB to tackle mandatory arbitration clauses
According to The Washington Post, the Consumer Financial Protection Bureau is expected to issue a comprehensive report next week — issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act — that consumer advocates predict will lay the groundwork for new regulations restricting how companies can implement mandatory arbitration clauses.
Mandatory arbitration bars consumers from filing class action lawsuits or taking other steps to seek relief after they feel a company has wronged them. The clauses are found in the fine print of most consumer agreements, including credit cards, cell phone contracts, real estate contracts, and for many online services.
Too often consumers don’t read the fine print and if they do, they often don’t understand that they are waiving their right to take a company to court.
“The unfairness…is incredibly widespread,” David Seligman, staff attorney at the National Consumer Law Center, told The Washington Post. “You either agree to give up your right to hold these companies accountable, or you don’t use a credit card.”
The CFPB has announced it will hold a field hearing on the topic next Tuesday in Newark, where the agency’s director Richard Cordray is scheduled to speak and consumers will get a chance to share their experiences with arbitration.
Those experiences are plentiful. An Internet search will return many complaints about the arbitration process, including undisclosed conflicts of interest, exorbitant costs and lack of fair discovery.
As previously reported, one California resident lost an arbitration case and was ordered to pay nearly $100,000 in legal fees to the prevailing party and was never provided proof that the prevailing party actually paid the attorney. An appeal is pending in the matter, however, appeals are rarely granted.
The California resident also learned after the fact that the arbitrator from the American Arbitration Association had several potential undisclosed conflicts. The law grants immunity to arbitrators so that there often is no recourse should a conflict be discovered after-the-fact. The law leaves it up to the consumer to check the background of an arbitrator prior to the commencement of the arbitration hearing.
The most compelling part of the law is that, unlike a judge, an arbitrator is not obligated to rule by the law.
The Consumer Financial Protection Bureau is a government agency that supervises banks, credit unions, and other financial companies, and enforces federal consumer financial laws.
Image: Adam Fagan