CFPB Wants to Survey Consumers About Forced Arbitration

| Filed under: 

The CFPB is examining consumer awareness of mandatory pre-dispute arbitration (“forced”) clauses. In June, they published a request for information to conduct a nationwide telephone survey of 1,000 credit card holders. The consumer survey is part of the CFPB’s effort to study the use of forced arbitration clauses in consumer financial contracts, which is required under the Dodd-Frank Act. The CFPB’s proposed survey will explore consumer awareness of dispute resolution terms in credit card agreements. The survey will gather information about consumers’ perceptions, preferences, and assumptions related to arbitration proceedings.

NACA filed comments to the CFPB’s request for information on the consumer arbitration survey.

NACA members have known for a long time through their experience with consumer clients and from published studies and reports that most consumers never even notice forced arbitration clauses, which are buried in the fine print of standard-form contracts. In fact, “(e)mpirical studies have shown that only a minute percentage of consumers read form agreements, and of these, only a smaller number understand what they read.” Even if consumers acknowledge the existence of an arbitration clause (e.g., responding to the salesman’s instruction to “sign here, initial here, here and here”), the consumer typically has no idea what forced arbitration entails.

The ordinary consumer does not realize he or she is giving up constitutional, statutory and common law rights by waiving access to the court system. In other words, the consumer is forced to waive fundamental due-process rights, including the right to sue in court, the right to appellate review, and the right to participate in a class-action lawsuit.

To make matters worse the widespread prevalence of forced arbitration clauses has been spurred on by recent Supreme Court decisions broadly interpreting the Federal Arbitration Act (FAA). In 2011, the Court held in AT&T Mobility v. Concepcion that corporations may use arbitration clauses to deny consumers their right to join together in class actions and hold corporations accountable for their wrongful behavior. This decision has an enormous impact on consumers of financial services—where the value of claims can be small individually, but large in the aggregate, and so class actions are often the only effective way of obtaining relief. The Supreme Court went even further in American Express Co. v. Italian Colors Restaurant, decided on June 20, 2013.

There, the Court held that corporations can force small businesses and individuals into arbitration even when they have proven that they will not be able to vindicate their rights through arbitration—that is, even when arbitration is illusory. As a consequence of these decisions, thousands of valid claims will likely go unheard in any forum—whether in court or arbitration.

Enabled by these decisions, companies now use forced arbitration clauses to eliminate the ability of consumers to seek collective redress, leaving them without any practical way to vindicate their rights. The rise of forced arbitration clauses has enormous consequences for consumers; it allows businesses to engage in unfair and deceptive practices without fear of consumers privately obtaining relief (including an injunction). Further, the presence of forced arbitration clauses in consumer financial contracts means that many serious violations of law will go publicly undetected, either because cases will never be brought or because the evidence presented and decisions rendered in private arbitration proceedings are not made public.

This is why it’s vital that the CFPB finalize its study on arbitration quickly. We expect that the CFPB’s study and a clearly drafted and carefully executed consumer telephone survey will confirm what the available empirical research already demonstrates: that not only are forced arbitration clauses harmful to consumers and designed to immunize corporations, but very few consumers are actually aware of and meaningfully agree to forced arbitration clauses. We hope that once the CFPB has gathered and studied all the empirical evidence available, it will take concrete action to ban forced arbitration in consumer financial contracts.