Consumer Financial Protection Bureau to Put End to Mandatory Arbitration for Consumer Loans, Credit Cards

Posted on May 5, 2016 by Yves Smith

It looks like a pervasive abuse is about to bite the dust.

A major way that financial firms have tipped the playing field even further in their direction is the inclusion of mandatory arbitration clauses in their contracts. The argument has been that this feature is beneficial to consumers, since arbitration is cheaper that litigation in the event of a dispute. But studies have repeatedly found that to be bollocks. The arbitrators that are chosen to serve are not only screened to be big institution friendly; arbitrators that wind up ruling in favor of customers have this funny way of being moved to the bottom of the selection list, while hanging arbitrators get regular assignments. For instance, from a 2009 report by the Center for Responsible Lending:

Arbitration cases can be unfair not only because consumers have no choice in the matter, but also because prior results from Public Citizen research suggests that consumers may win only 4% of the time. The relationship as currently structured gives arbitration forums and arbitrators a strong incentive to side with “repeat players” that control the flow of ongoing business, rather than a consumer seen only once. In the credit card context as well as many other consumer transactions, it is very difficult to find a product without a forced arbitration agreement hidden somewhere in the fine print.