Research and Statistics

Federal watchdog gives consumers a chance to speak on arbitration

The Consumer Financial Protection Bureau is giving consumers and banking industry representatives a chance to speak their minds about the long-disputed matter of binding arbitration clauses in financial agreements.

Arbitration clauses, which require parties to settle all disputes out of court, are widely used in credit card agreements and other financial products. According to the invitation for public comment posted Tuesday, April 24, Congress requires the CFPB, established in 2011 as a federal consumer watchdog, to examine how arbitration is affecting consumers. The agency also has the power to establish regulations to protect consumers.

“Arbitration clauses are found in many contracts for consumer financial products,” said CFPB Director Richard Cordray. “We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers’ issues. This inquiry will help the Bureau assess whether rules are needed to protect consumers.”

Many financial companies argue that arbitration is a faster, more forthright alternative to settling problems in the court system. They also note that it’s cheaper. Arbitration, however, requires consumers to surrender their right to sue, and many consumer advocates say the process as used in financial products is biased toward banks.

Some card issuers dropped the take-it-or-leave-it arbitration clauses in 2009 under public pressure, but they made a comeback with a January 2012 decision by the U.S. Supreme Court, which backed their legality.

Against that backdrop, the CFPB wants to hear what the public has to say. It is conducting a study focusing on the responses to questions about how arbitration affects both consumers and companies.

To comment, mail responses to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700G Street, N.W., Washington, DC 20552. Or, submit a comment online at Search for CFPB and arbitration.

All submissions must be made by June 23, 2012.

See related:Credit card arbitration: What it is, how it works, More credit card issuers ditch mandatory binding arbitration 

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