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CFPB Releases Preliminary Arbitration Research

December 13, 2013
3 min to read


Washington — The Consumer Financial Protection Bureau (CFPB) released preliminary research on the use of arbitration clauses in connection with consumer financial products and services. The study found that more than 90 percent of the arbitration clauses examined by the bureau explicitly bar consumers from participating in class arbitrations.


“If you were to look in your wallet right now, the chances are high that one or more of your credit cards, debit cards or prepaid cards would be subject to a pre-dispute arbitration clause,” said CFPB Director Richard Cordray during a field hearing on arbitration in Dallas today.

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The bureau was created with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Under the act, the CFPB is required to study the use of pre-dispute arbitration contract provisions in connection with the offering of consumer financial products or services, and to provide a report to Congress. The preliminary research released Wednesday is part of an ongoing study.


Consumer advocates have long argued that arbitration clauses hurt consumers, as arbitrators often side with the company or service provider during a dispute. The CFPB’s research found that arbitration clauses were also significantly more daunting to consumers than the credit card agreements associated with them.


“Regardless of who was using them, arbitration clauses in credit card agreements were almost always more complex and written at a more demanding grade level of readability than the other parts of the contracts we studied,” Cordray noted. “In fact, in every case, the rest of the credit card contract scored better in terms of readability than did its arbitration clause considered alone.”


The research concluded that very few consumers use arbitration at all, at least when compared to the number of consumers involved in lawsuits and class actions. In the second phase of the bureau’s study, “we will look to see what happens to arbitration filings and endeavor to compare what we see happening in arbitration to what we see happening in litigation, including class litigation,” Cordray added.


Earlier this year, Tom Hudson predicted that the CFPB would ultimately eliminate arbitration agreements from auto transactions as a result of its review of such agreements. Like other auto industry members, he suggested that the CFPB’s first move would be to eliminate arbitration agreements from auto transactions. Instead, the bureau targeted rate markups first.

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“The smart money says we’ll see an across-the-board prohibition of arbitration agreements in connection with consumer financial services,” Hudson wrote in February.


The research released this week did not touch on auto finance, instead focusing on credit cards and bank cards.


“Another thing I noted was that the bureau’s listing of the various anti-consumer features, or lack of pro-consumer features, of the arbitration agreements that it had found in these other product areas will make the arbitration provisions in common use in the vehicle finance market look very consumer-friendly by comparison,” Hudson said.

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