What Mandatory Arbitration Means to Consumers

You may not realize it, but buried in your cell phone contract, mortgage documents, or credit card contract is a mandatory arbitration agreement. This paragraph can keep you from taking your bank to court when problems arise. Now the Consumer Financial Protection Bureau is cracking down on mandatory arbitration agreements to protect consumers' rights.

Consumers used to be able to bring problems with their banks to court and ask a judge to decide if the bank had done something wrong. Then, to save companies' time and expense, business contracts started to include arbitration provisions. These agreements allowed either party to take a case out of court and have it decided informally by a neutral arbitrator (often a retired judge or attorney).

But mandatory arbitration agreements almost always turn out in favor of the company. Consumers usually don't know they have signed them, and so will not force arbitration when it would help them. When the banks do enforce arbitration provisions, the arbitrator they choose is often biased toward the industry.

Arbitration can't be appealed like a judge's ruling. When the consumer gets an arbitration decision she doesn't like she is out of luck. So bad decisions go unchallenged and companies are able to continue bad practices that hurt consumers.

When a consumer signs a mandatory arbitration agreement, he is also signing away his right to participate in class-action lawsuits against the company. When an individual's claim is small, but the company's behavior affects a large number of customers, consumer protection attorneys can use class-action lawsuits to get the company to change its ways. Class-action lawsuits combine the claims of a broad category of people into one legal action – letting them share the cost of litigation.

Mandatory arbitration agreements take away that tool. By requiring each individual claim to be taken to an arbitrator, rather than to court, companies are able to ensure they won't have to face classes of consumers whose cases are stronger together.

That's why last month the Consumer Financial Protection Bureau (CFPB) issued a new regulation banning “class-action waiver” language in mandatory arbitration agreements. Under the new rule, consumers with small claims would still be able to pursue a class-action lawsuit even if they had signed mandatory arbitration agreements. If they sue individually, the banks can still remove the case from court and take it to arbitration.

Some commentators believe this move is too little to provide meaningful consumer protection. They believe CFPB should have banned mandatory arbitration agreements entirely.

A ban on mandatory arbitration agreements would protect consumers from businesses who take advantage of a corrupt arbitration system. It would restore their access to the courts. It would put tools back into the hands of consumer protection attorneys like Dani K. Liblang who fight for their clients against big businesses and their harmful practices. If you have a dispute with your bank and are worried about arbitration, contact The Liblang Law Firm, P.C., for a free consultation today.