The Consumer Financial Protection Bureau (CFPB) is currently seeking public comment on new proposed rules that would prohibit mandatory arbitration clauses on consumer financial products. This is good news for consumers who might one day find themselves with a grievance against a financial company like a bank or a credit card company.
Arbitration clauses are elements of contracts stating that either party may require that any dispute be handled by a private aribtrator instead of going to court. Arbitration clauses can crop up in any commercial contractual agreement. In the consumer financial world, arbitration clauses can crop up when people sign up for bank accounts or credit cards. Signing a contract without really looking at it carefully can mean signing your rights away should you have an issue with the company at a later date.
Why do arbitration clauses exist?
Arbitration clauses generally work in favor of the larger, more powerful party in a dispute– in this case, companies. Arbitration can be a way for companies to avoid bad publicity, as negotiations take place behind closed doors and do not become public record. Arbitration clauses can also prevent consumers from joining class action lawsuits, forcing each individual affected by potential financial fraud to deal with their concerns on a case-by-case basis. This is unfortunate as class-action lawsuits can be effective tools for securing a degree of compensation as well as motivating companies to change policies that may be damaging to consumers.
The Wells Fargo example
The recent Wells Fargo scandal provides a window into how arbitration clauses generally benefit companies and are detrimental to consumers. Wells Fargo continues to try to defend itself against consumer claims by pointing to arbitration clauses that consumers signed when they opened accounts. But some argue that the fact that Wells Fargo engaged in fraud by opening accounts without customers’ knowledge invalidates such clauses. While the argument continues, consumers continue to wait for justice, some of them having suffered damage to their credit scores through no fault of their own.
If an arbitration clause is currently preventing you from seeking redress for financial fraud, or if you have concerns about a contract you are being asked to sign that contains such a clause, it’s important to speak with a qualified attorney to find out about your options.