The Consumer Financial Protection Bureau (CFPB) announced today at a hearing in Denver that it is considering proposing rules that would ban consumer financial companies from using arbitration clauses to block consumers from participating in class-action lawsuits against them. The proposals would also require that companies that choose to use arbitration clauses submit to the CFPB any arbitration claims filed against them and any awards. The Bureau is considering publishing this information on its website so consumers can monitor them.

These proposals, if accepted, could impact you. If you have a bank account, credit card, or student loan, you're likely one of the millions of consumers who have signed away a key consumer right: The ability to join together with other consumers in a class-action lawsuit if a company breaks the law and harms you.

Buried in many contracts for consumer financial products are arbitration clauses that block consumers from seeking relief through group lawsuits. They're in the fine print of many contracts including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, payday loans, private student loans, and installment loans. If you ever have a complaint against one of those companies, you will be obligated to take your dispute to a private arbitration firm instead of going to court.

Limited Rights

If you are bound by an arbitration clause, the company usually gets to pick the arbitrator (or arbitration firm). The final decision is usually kept confidential, and there’s little basis on which the decision can be appealed. Paul Bland, the executive director of the consumer-rights law firm Public Justice, noted at the hearing that a few consumers have had to declare bankruptcy after an arbitration dispute because they were forced to pay a company's attorneys fees, which can total hundreds of thousands of dollars.

As another audience member said, you don't discover you have these limitations until you have a problem with a company. According to a study on arbitration conducted by the CFPB released in March, more than 75 percent of consumers surveyed in the credit card market did not know whether they were subject to an arbitration clause in their contract. Fewer than 7 percent of those consumers realized that restricted their ability to sue in court.

The proposals being considered would not ban arbitration clauses in their entirety. However, the clauses would have to say explicitly that they do not apply to cases filed as class actions unless and until the class certification is denied by the court or the class claims are dismissed in court.

Next steps: The agency will consult with small business representatives, and seek input from the public, consumer groups, industry, and other stakeholders.