Consumer Protection Bureau Criticizes Arbitration Clauses

If you have a credit card or a mobile phone, you have probably signed an arbitration clause. Find out what that means and why the federal Consumer Protection Bureau is considering restricting them.

What is an Arbitration Clause?

An arbitration clause is a paragraph in a contract requiring any disputes to be taken before a private decision maker, called an Arbitrator, before they can go to court. When it works well, an arbitration clause can be quicker and less expensive than filing a lawsuit. The decision made by the arbitrator is binding – meaning it is final and can only be overturned in very limited situations. This avoids long appeals to higher courts and resolves the conflict faster.

What is the Problem with Arbitration Clauses?

When parties don't have the same negotiating power, an arbitration clause can turn from efficient to unjust. Big industry leaders include these provisions into their boiler-plate contracts knowing that the average consumer will not read them or know what they mean. When a consumer sues the company, its lawyers can get the case dismissed because the consumer didn't go through arbitration first. Since the decision is binding, the consumer can't get a judge to review a ruling favoring the big company, and he or she ends up stuck with a bad result.

Why the Consumer Protection Bureau Cares

Generally, two parties can agree to any financial arrangement in a contract. But when an agreement heavily favors the “big guy” over the “little guy” the federal Consumer Financial Protection Bureau can step in. When it comes to arbitration clauses, bureau director Richard Cordray said:

“Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.”

Class action lawsuits can be used when many consumers are hurt in the same way by the same company, for example by charging inappropriate termination fees. They let a few representatives protect the rights of the whole class. Because arbitration clauses require each class member to go to arbitration independently, they strip the public of this important consumer protection tool.
That's why the Consumer Protection Bureau is considering limiting the use of arbitration clauses by banks and credit cards. Similar bans already apply to mortgage agreements, for the same reasons.

Big business lawyers know how to take full advantage of every sentence their contracts, including arbitration provisions. If you have a dispute with a service provider, you need to contact an experienced consumer protection attorney like Dani L. Liblang. She and her team at the Liblang Law Firm , P.C., have been representing Michigan's consumers for over 30 years. She can help you go up against the big guys and get your dispute resolved fairly. If you have a consumer protection concern, contact the Liblang Law Firm, P.C., today to see if you have a case.