WASHINGTON–The Consumer Financial Protection Bureau is seeking input for a study that could pave the way for new limits on consumer arbitration clauses.

The agency said Tuesday it is launching an inquiry, required under the Dodd-Frank Act, into how arbitration and arbitration clauses affect consumers and financial-services firms. The financial reform law also allows the bureau to impose new regulations or conditions on the clauses, which consumer advocates have long criticized, and observers said a regulation is all but certain.

"I don't think that they'll eliminate them entirely," said L. Richard Fischer, a partner with the law firm Morrison & Foerster. "But the conditions will be so onerous as to make them impractical. This is a foregone conclusion."

Industry and consumer groups have been waiting on the bureau to weigh in on arbitration clauses in the wake of two Supreme Court rulings in support of mandatory arbitration.

A Jan. 10 Supreme Court ruling upheld the controversial practice of including mandatory-arbitration clauses in credit card contracts (see story). The high court struck down a lower court ruling that said the Credit Repair Organizations Act gave customers a right to sue in court and banned them from waiving their rights under the law.

The court also ruled last April that businesses may require customers to sign binding agreements that prohibit them from joining class action lawsuits.

The Dodd-Frank Act, however, allows the bureau to issue rules that may "prohibit or impose conditions" on the use of arbitration agreements if the study finds that it would be in the public interest and would protect consumers.

"Arbitration clauses are found in many contracts for consumer financial products," bureau Director Richard Corday said in an April 24 press release. "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."

The bureau is asking the public for information about the prevalence of arbitration clauses in consumer financial products and services, what claims consumers bring in arbitration, if claims are brought by financial firms against consumers, how consumers and companies are affected by actual arbitrations and how they're affected by the clauses outside of arbitration. It is also seeking suggestions on the appropriate scope, methods and sources of data for conducting the study.

Comments are due by June 23.

The agency also notes in the press release that Dodd-Frank gives it the power to issue regulations "consistent with the study" to protect consumers.

Companies that use pre-dispute arbitration clauses often claim that it is faster and cheaper than litigation, the bureau said in the release, while others say consumers may not realize they are signing away their right to a trial.

A longer version of this story is on AmericanBanker.com.

What do you think about this? Send us your feedback. Click Here.

 

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry