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Forced arbitration robs consumers of their day in court, report shows

Justice imagesArbitration agreements restrict consumers’ ability to resolve disputes on financial products and services because class actions lawsuits aren’t allowed, according to a report released Monday by the Consumer Financial Protection Bureau.

The report found that few consumers resolve disputes through arbitration or the federal courts, while millions of consumers could do so through class action settlements.

The bureau’s report also found that more than 75 percent of consumers surveyed didn’t know about arbitration clauses, and less than 7 percent of those covered by arbitration clauses realize that the clauses restricted their ability to sue in court.

“Now that our study has been completed, we will consider what next steps are appropriate,” said Richard Cordray, director of the bureau.

 

In recent years, many contracts for consumer financial products and services have included a “pre-dispute arbitration clause” stating that either party can require that disputes be resolved through arbitration instead of the court system. Where the clauses exist, either side can block lawsuits, including class actions.

The bureau launched a public inquiry on arbitration clauses in April 2012. In its study, it looked at arbitration clauses in different consumer finance markets including credit cards and checking accounts, which have the largest numbers of consumers.

Big Banks and financial predators are using fine-print terms in contracts as an effective license to steal, said Christine Hines, consumer and civil justice counsel for Public Citizen’s Congress Watch Division. To protect consumers, the bureau must follow up its study with action: a rule taking away the banks’ right to steal and ending forced arbitration, Hines said.

For example, the bureau’s finding that 99 percent of storefront locations for payday lenders in California and Texas restrict consumers’ ability to access the court is astounding, she said.

“It’s clear that the fundamental legal rights of the most vulnerable consumers who take out these loans are held captive by terms that the borrowers are unaware of and do not understand,” Hines said. “Further, the payday loan industry, which has been severely scrutinized for aggressive and predatory practices, is systematically avoiding accountability.”

Public Citizen urges the bureau to protect consumers and ban the use of forced arbitration clauses in consumer financial products, she said.

“Public Citizen has examined forced arbitration numerous times and has repeatedly demonstrated that these clauses are in nearly every type of consumer contract and that they squash consumer claims,” Hines said. “Very few individuals are able to hold companies accountable in arbitration, especially on an individual basis.”

Copyright 2015, Rita R. Robison, Consumer Specialist

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