The Washington Post
ran an article today entitled, "Why it's nearly impossible for you to sue your credit
card company." It discusses the prevalence of mandatory arbitration
in credit agreements.
The Federal Arbitration Act (FAA) has long stated that arbitration clauses
in contracts are to be upheld. After the U.S. Supreme Court's ruling in
Concepcion, many companies moved to add mandatory arbitration language to their customer
Concepcion, the SCOTUS ruled that the FAA trumps state laws that prohibit contracts
from forcing arbitration for class action claims.
The CFPB is expected to issue findings about mandatory arbitration clauses
soon. In the meantime, the Washington Post article does a great job of
explaining both sides of the issue. Mandatory arbitration tends to hurt
the consumer and benefit the creditor because the arbitration process
often is slanted in the favor of the creditor. The banking industry says
that arbitration keeps costs down by minimizing litigation costs. In turn,
the story goes, the cost of credit is cheaper for consumers.
However, it's worth noting that the confidential nature of many arbitration
proceedings means that other consumers may be unaware that they have claims
against a company. When a lawsuit is filed, it is part of the public record.
Even if the matter later ends in a confidential settlement, the complaint
and any other documents associated with the case generally remain public
record. This gives other consumers (and consumer defense attorneys) the
opportunity to identify claims. Additionally, a large number of cases
filed against the same defendant may indicate a pattern and practice of
The CFPB is expected to issue rules regarding the use of mandatory arbitration
clauses. In the meantime, consumers seeking to pursue their creditors
may be left without much legal recourse.