Forced Arbitration Clauses

David Lazarus noted in the business section of today’s Los Angeles Times that, “If you’ve got a credit card, you’ve been forced to kiss away your constitutional right to sue the card issuer. But it’s looking increasingly likely that this is about to change.

“The Consumer Financial Protection Bureau is examining so-called arbitration clauses in terms and conditions for financial products. Last week, the head of the bureau, Richard Cordray, sent the strongest signal yet that the regulatory whip soon will come down on banks and other lenders denying customers their day in court if they feel mistreated.

“‘By inserting an arbitration clause into their contracts, companies can sidestep the legal system, avoid big refunds and continue to pursue profitable practices that may violate the law and harm consumers,’ he said in a speech to the American Constitution Society.”

Mr.┬áLazarus explained that, “Forced arbitration has become a routine part of many companies’ dealings with customers, thanks to the U.S. Supreme Court, which has issued several rulings in recent years upholding the practice [see related blog update from Feb. 8, here].

“But under the financial reform law enacted in 2010, the Consumer Financial Protection Bureau was empowered to study forced arbitration by financial services firms and to issue new regulations if deemed necessary. It now seems certain that rule changes are in the works.”

Today’s article added that, “This would affect banks, credit card issuers and other firms falling under the agency’s jurisdiction. It wouldn’t affect non-financial businesses that also inflict arbitration clauses on customers, such as phone companies, pay-TV providers, rental car firms and others.

That would take an act of Congress. And, as it turns out, that’s also a possibility…”

For a more detailed look at the recent Congressional activity on the arbitration issue, see this blog update from Feb. 5; and, for a more general discussion of arbitration, see this recent series in The New York Times.

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