Arbitration Clauses Affect Consumer Class Action Rights—Regulators May Step In

One of the most important tools consumers have is the consumer class action. It is extremely rare for one consumer to be able to realistically fight a legal battle against a major corporation with relatively limitless resources all by him or herself. Class actions allow a group of consumers who have been wronged by the same company in a similar way to come together and pooling their resources, in order to make making the fight against the large company a fair one. But many companies, especially banks and credit- card companies, have started forcing consumers to agree to arbitration of any future dispute when they open their accounts, forever waiving their right to join a class action and preventing the company for ever being held truly responsible for bad actions. Fortunately, it appears regulators may finally step in and solve this problem.

Consumer Financial Protection Bureau Considers Taking Action
The New York Times reports that the federal Consumer Financial Protection Bureau is considering taking action to restore consumers’ rights to file class actions against these companies. The agency just released a study in which it found that these pre-dispute arbitration clauses are preventing class actions and as a result are preventing consumers from actually being able to seek financial compensation when they have legitimately been wronged. The agency’s director, Richard Cordray, said, “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.”

Financial Companies Offer Excuses
Groups who represent these financial companies defend the uses of these mandatory arbitration clauses. They claim that the arbitration clauses are good because they provide a faster and cheaper way to resolve disputes, which keeps the costs of financial services down. This, of course, ignores the fact that simply doing right by consumers in the first place would substantially decrease the number of disputes that have to be resolved through class action. Additionally, the Consumer Financial Protection Bureau’’s study found that companies that do not use the mandatory arbitration agreements have not had to increase the costs of their services to customers. So really this is all about driving up corporate profits at a cost to the consumers’ expense, not decreasing consumer costs.

People Do Not Know About These Clauses
A part of the problem is that people do not know they are subject to these arbitration clauses until it is too late and they have already been wronged. The St. Louis Post-Dispatch reports that more than 75 percent of consumers surveyed by the Consumer Financial Protection Bureau have no idea whether they are subject to these clauses. Of the consumers who are subject to the clauses only 7 percent understand that the clauses prevent them from being able to file a lawsuit if they are wronged by the company. This is one of the reasons it is so important to seek out the assistance of an experienced consumer protection lawyer like Brian Bromberg when you are harmed by one of these companies.