Regulating Forced Arbitration in Consumer Financial Services

Originally published by Beth Graham.

Professor Martha McCluskey, University at Buffalo Law School, State University of New York, Professor Thomas McGarity, University of Texas School of Law, Professor Sidney Shapiro, Wake Forest University School of Law, James Goodwin, Senior Policy Analyst at the Center for Progressive Reform, and Mollie Rosenzweig, Policy Analyst at the Center for Progressive Reform, have published a timely report entitled, “Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers.”  In their publication, the authors examine the Consumer Financial Protection Bureau’s recent proposal to limit the use of mandatory arbitration clauses in certain consumer contracts.

Here is the abstract:

Forced arbitration clauses have become almost unavoidable in contracts for financial services and products ranging from credit cards to private student loans. This report examines how the financial services industry uses these clauses to defeat consumers’ rights and evade accountability for their wrongdoing.

As the report explains, the forced arbitration process harms consumers by relegating them from the civil justice system to an inferior forum for vindicating their rights. In contrast to the courts, forced arbitration tends to be secretive, less independent of industry, more prone to erroneous and arbitrary rulings, more likely to discourage the pursuit of claims with procedural barriers, and more likely to provide inadequate relief for compensating victims of corporate wrongdoing.

The report examines the 2016 proposal by the Consumer Financial Protection Bureau (CFPB) to limit the use of forced arbitration clauses in contracts for financial services and products, and finds that the proposal is consistent with the agency’s statutory obligation to protect consumers. The report goes on to explain that the CFPB would better fulfill its statutory mandate by revising its proposal to include stronger protections for consumers.

This and a number of other research papers written by the authors may be downloaded free of charge from the Social Science Research Network.

What do you think of the CFPB’s proposal?  We would love to hear your thoughts.

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