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Consumer Financial Protection Bureau Study Critical of Arbitration Clauses

The Consumer Financial Protection Bureau ("CFPB"), in a study mandated by a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, investigated the effects of arbitration clauses on consumers and financial companies. Arbitration clauses have been a point of contention for consumer advocate groups because they reduce consumers' legal rights and ability to seek redress.1

The CFPB found that, although the majority of banks and credit card companies have included arbitration clauses in consumer contracts, 75% of consumers do not know that they are subject to these agreements.2 Under current law, assuming both parties agree to a contract with an arbitration clause, any dispute that arises between a company and consumer can be required to be settled by binding arbitration. Rather than bringing a claim before a court of law, binding arbitration requires that a privately-appointed arbitrator hear the case and make a final decision. Additionally, arbitration agreements generally prohibit jury trials and collective actions, involve less discovery, and have appeal rights that "are more limited" than in litigation, all to the detriment of consumers.3

The CFPB was critical of arbitration clauses, concluding that consumers' rights have been improperly restrained by the contract clauses. The in-depth study included some major conclusions, such as the fact that over 32 million American consumers could be eligible to participate in class action settlements each year but are unable to do so due to arbitration provisions in contracts. Additionally, its findings show that arbitration clauses do not lower prices for consumers, although they do generally lead to lower litigation costs for companies. The CFPB also reported that while arbitration clauses in financial contracts are most common with checking accounts and credit cards, they are also commonly found in private student loan, payday loan, and cell phone contracts.4

Past behavior indicates that the CFPB may utilize this report to create rules that may give consumers options in pursuing disputes. "In other situations where the CFPB has issued a report or study, it has used those documents as the legal, policy, and political justification for subsequent regulatory actions, such as for fair lending and payday lending."5 Additionally, while the CFPB only deals with financial companies and its rules do not directly affect other government agencies' policies, some speculate "that the CFPB action might lead to what amounts to 'government peer pressure' on other agencies, such as the Federal Trade Commission, Securities and Exchange Commission, and Commodity Futures Trading Commission, as well as state law enforcement and financial regulatory authorities, to either promulgate their own rules if they have the authority or to look to their own unfair and deceptive trade practices authority to expand the CFPB mandate beyond the CFPB's authority."6 Consumers in all industries could benefit greatly from the CFPB's findings and analyses and any resulting limitations of arbitration clauses in contracts.

For a full link to the CFPB's report, see:

If you have any questions regarding this subject or this posting, please contact Valerie Chang ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS also maintains an affiliate office in London, England and is an active member of Integrated Advisory Group (, which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at








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