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Consumer Financial Protection Bureau takes on arbitration

Most of us don't realize it, but clauses hidden in the agreements we sign hurt consumers, according to a new report

Published: March 12, 2015 02:45 PM

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The Consumer Financial Protection Bureau has released a new, comprehensive report on forced-arbitration clauses. Those are the clauses often hidden away in agreements you sign with merchants. Buried in the fine print, the clauses waive your right to class actions. That means that consumers can be financially hurt by such clauses. Here are some highlights of the report:

• Arbitration agreements are everywhere. As many as half of all credit-card debt and checking account deposits are subject to the contract clauses. As many as 80 million consumers are subject to an arbitration agreement related to one or more of their credit-card accounts.

• Most people are clueless that they've signed away their rights. Three out of four consumers surveyed didn't know if they were subject to an arbitration clause. Only 7 percent knew that the clauses stripped them of their right to sue.

Read about the movement to curb the use of forced arbitration clauses led by Consumers Union, the advocacy arm of Consumer Reports.

• Class-action settlements are much more favorable to consumers. The CFPB found that roughly 32 million consumers, on average, are eligible for relief through consumer financial class action settlements each year. Between 2008 and 2012, total cash, in kind relief from such settlements amounted to $2.2 billion, after subtracting attorney fees. But the agency found that when credit-card issuers with an arbitration clause were sued in class actions, two thirds invoked the arbitration clause to block the class actions.

• Arbitration clauses don't make products or services less expensive. That's sometimes the claim of companies including those who have such clauses in their contracts. But the CFPB compared the total cost of credit for account holders of credit-card companies that dropped their arbitration clauses in 2009 with companies that made no change in their use of arbitration clauses, and found no statistically significant evidence of a price increase after the clauses were dropped.

Negative impact on consumers

At a hearing the CFPB hosted on Tuesday in Newark, N.J., Jane Santoni, a private consumer-protection attorney from Maryland, said that in her experience, arbitration cases usually result in poor results for consumers. As a result, she has stopped accepting the cases. "I have to say, 'That trial that you think you get, you don't get. And by the way, when you signed the contract, did you know this?' There's never been a single person who has said, 'I knew.' It has an astronomical chilling effect."

—Tobie Stanger (@TobieStanger on Twitter)


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