CFPB launches study into arbitration process, arbitration clauses

Richard Cordray

The Consumer Financial Protection Bureau launched a public inquiry on Tuesday into the effects of arbitration and arbitration clauses on financial services companies and consumers.

“Arbitration clauses are found in many contracts for consumer financial products,” CFPB Director Richard Cordray said. “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.”

Arbitration is a process used to resolve claims and disputes outside of the legal system. Many consumer financial products and services are often accompanied by a “pre-dispute arbitration clause” that states that the parties agree to resolve any disputes related to the product or service through arbitration.

Under the 2010 Dodd-Frank Act, the CFPB is required to study pre-dispute arbitration clauses in the consumer market and has the authority to issue consumer-friendly regulations based on the results of the study.

The CFPB is asking the American public about the prevalence of arbitration clauses in consumer financial products and services, the kind of claims brought in arbitration against companies, whether arbitration claims are brought by financial companies against consumers, how the consumer and corporation are affected by arbitration, and how consumers and corporations are affected by clauses outside of the actual arbitrations.

Organizations that use pre-dispute arbitration clauses say that arbitration is less costly and more time-efficient than going the legal route, but critics disagree, saying that many consumers are not aware that they have waived their legal right to a trial because of the arbitration clause.

The Request for Information on Arbitration comment period is open until June 23. Once the CFPB completes the study, the agency will evaluate the need for consumer-protection regulations.

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