The CFPB released a report on Thursday that showed approximately 90 percent of arbitration clauses, which are commonly used by large banks in checking and credit card agreements, keep banks out of class action lawsuits.
Arbitration is a process for handling disputes outside of the court system. Many consumer financial products carry contracts that contain a pre-dispute arbitration clause, which states that either party can require disputes to be handled outside of court.
“Many contracts for consumer financial products and services contain arbitration clauses,” CFPB Director Richard Cordray said. “Today’s preliminary results help us better understand how these clauses are affecting consumers’ financial lives so that we can ultimately determine whether action should be taken for their greater protection.”
The agency examined filings with the American Arbitration Association related to credit cards, checking accounts, payday loans and prepaid cards between 2010 and 2012. Fewer than 1,250 arbitrations—approximately 900 filed by consumers—were filed related to the products.
Over the same three-year period, more than 3,000 cases related to credit card issues were filed in federal court, and more than 400 of the court cases were filed as class action lawsuits.
The CFPB research also showed that larger institutions are more likely than community banks and credit unions to include an arbitration clause in contracts for financial services and products. Sixty-two percent of the top 50 banks have arbitration clauses in their checking account contracts.
The CFPB plans to complete a second phase of arbitration study, in which it will examine whether consumers are aware of arbitration clauses and whether they influence decisions about which products to purchase.