Magazine article American Banker

Arbitration Restrictions Could Hurt Consumers

Magazine article American Banker

Arbitration Restrictions Could Hurt Consumers

Article excerpt

Byline: Jason Oxman

Today's consumers have a wide variety of choices to meet their specific financial needs. Thanks to this robust competition, if a consumer is dissatisfied with a product or company, many other providers will be happy to step in and provide superior service. In those rare cases where a dispute arises between providers and customers, arbitration has quickly become the most popular and reliable way to resolve conflicts in a cost-effective and timely manner.

Arbitration is cheaper, faster and more flexible than litigation for both consumers and financial institutions. When given the choice, consumers often choose arbitration. This is why many financial services contracts pre-select arbitration as the means for addressing commercial disputes. If consumers prefer not to have a mandatory arbitration clause, they can choose from one of the many other products that do not require it.

But a recent arbitration study published by the Consumer Financial Protection Bureau lays the groundwork for the federal agency to eliminate arbitration-whether or not it is pre-selected by the contract-as a dispute resolution option. The study recommends restricting the use of arbitration clauses in consumer financial services contracts, including agreements for credit cards, checking accounts or debit cards, auto loans, and prepaid cards. Such drastic action could wind up harming the consumers the CFPB says it wants to protect.

Arbitration is preferable to lawsuits for many reasons. First, class-action lawsuits result in millions of dollars in legal fees but provide little or no benefit to consumers. According to the CFPB's own numbers, an average class action lawsuit member received just $6.29, while the lawyers leading the case received millions. Typically, arbitration results in much higher returns for consumers. The CFPB's data establishes that consumers won 47 cents on the dollar in arbitration cases where they received a recovery, as opposed to the minimal payments received by class action participants. …

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