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Mandatory Arbitration Clauses and Consumer Impact

You have probably signed one. Not too long ago, I signed one while securing a car loan. "I don't want to sign this," I said, when I saw the page titled "arbitration clause" laid down in front of me. "Is this negotiable?" "No," the loan officer responded, before assuring me that it would just make any disputes quicker and easier to resolve. 

Quicker and easier for whom? Arbitration clauses have been slipped into the contracts for many financial products and services—credit cards, payday loans, even the recent Equifax credit monitoring service offered in the wake of the data breach—and these clauses limit consumers' options for addressing legal issues with their providers by requiring that the matter be addressed with a private arbitrator rather than in the courts. Meanwhile, a report from the PEW Charitable Trusts demonstrates consumers' belief in fair reconciliation of consumer disputes. They found that 95 percent of consumers said they should have the right to have their cases decided by a judge or jury while 89 percent supported consumers' right to participate in group lawsuits. Group lawsuits are important as many individuals will not pursue relief on their own, especially when the harms are small yet often repeated many times over. Arbitration clauses are also tucked into employment agreements, making it more difficult to bring discrimination or wage and hour cases forward.

The Consumer Financial Protection Bureau recently issued a rule to ban mandatory arbitration clauses for financial services. Opponents of the rule argue that consumers receive greater relief in arbitration, winning on average $5,389 as opposed to an average of $32 in class action lawsuits. However, these statistics ignore the reality that only consumers with significant damages pursue relief through arbitration and very few win. According to a CFPB study, millions of consumers obtain relief through class action lawsuits each year while many fewer (some reports estimate as few as 20 people annually) receive relief in arbitration.

The House has already voted to roll back the CFPB's rule (see how your lawmaker voted here), and the Senate may vote to do the same early next week. If you believe, as I do (and many others, including these 400+ college professors) that class action is an important tool to deter financial institutions from mistreating consumers and to provide relief when they cause harm, please let Senators Donnelly and Young know they should vote "no" on S.J. Res 47. Capitol switchboard: (202) 224-3121.

Kathleen Taylor