National Changes to Mandatory Arbitration Clauses
Posted on May 12, 2016
The Consumer Financial Protection Bureau (CFPB) proposed an amended rule for how financial companies and some other entities include mandatory arbitration clauses in their agreements. The CFPB released a proposed rule that would prevent financial companies from including provisions in their agreements that strip the consumer's right to a class-action suit. These provisions, sometimes labeled 'pre-dispute arbitration agreements,' require consumers to settle their dispute through arbitration. With no right to a trial or class-action lawsuit, consumers must follow and accept the results of an arbitration.
Arbitration is a legal process that is attractive for its low costs and expediency. With no need for court dates and costs, jury selection, a lengthy trial or appeal after appeal, - arbitration instead is structured with a small panel that acts like a jury and their decision is often permanent. Some individuals avoid this option due to the binding nature of this resolution method, and the possible outcome of a small settlement. However, many credit card companies and financial service entities require their members and users to agree to arbitration-only terms. The CFPB hopes to change that by proposing companies include a new clause in their agreements:
“We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it.”