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Is Credit Card Arbitration a Lousy Deal for the Consumer?

Is Credit Card Arbitration a Lousy Deal?

The CFPB thinks so.  It recently released a study on arbitration clauses in consumer credit card agreements. The main finding: “arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions.” Basically, pre-dispute arbitration clauses that allow one party to require a dispute to be resolved through arbitration often block lawsuits like class actions from happening.

According to the CFPB’s press release, consumers are losing out on billions due to credit card arbitration clauses blocking class actions. “Across substantially all consumer finance markets, at least 160 million class members were eligible for relief over the five-year period studied. The settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses – with roughly 18 percent of that going to expenses and attorneys’ fees.”

Sadly, the study results reveal that consumers are often unaware an arbitration clause exists and what it actually means. “[M]ore than 75 percent of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers, and fewer than 7 percent of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court.”

Lastly, and perhaps most disappointing from a law firm’s perspective, the study found that “very few consumers individually seek relief through arbitration or the federal courts.”

We see and deal with these arbitration clauses every day.  They help the bank, but not the consumer.  There is no real way to opt out of them.  Often, there is a complicated process to opt-out but doing so means that the bank will likely close the consumer’s credit card account.

Author: Kevin Fallon McCarthy

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Kevin Fallon McCarthy is the McCarthy Law PLC’s managing attorney and an experienced Phoenix debt attorney. Mr. McCarthy has also worked as general counsel for a large corporation. He has corporate counsel experience in human resource matters, general corporate governance, and union class action litigation.