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CFPB Study: Unsurprisingly, Arbitration Puts Consumers at Severe Disadvantage

Michael Rapp March 30, 2015

A recent Huffington Post article sheds light on a study conducted by the Consumer Financial Protection Bureau (CFPB) regarding the pitfalls of arbitration for consumers. What many consumers do not realize is that the possibility of arbitration hearings are built into the fine print of rarely-read terms-of-service contracts. Since the majority of consumers do not read their terms of service when opening a new line of credit, borrowing a loan, or signing up for new cell phone service, they are unaware of the potential dangers of a case going to arbitration.

As the CFPB study outlines, consumers often lose most of their legal rights when cases are decided by an arbitrator instead of in court. For starters, the study found that companies are usually represented by a legal counsel during arbitration, whereas consumers typically go it alone.

Possibly the most startling finding of the CFPB study is that arbitrators heavily favor large companies in their decisions. In its sample, the CFPB found that companies were awarded about $2.8 million compared to just $400,000 for consumers. Simply put: during arbitration, consumers win their cases less often and are ordered to pay more often than large companies.

One saving grace for consumers involved in hearings is the Dodd-Frank Wall Street Reform Act, which allows the Bureau to prohibit arbitration wherever it sees fit, especially cases where collection agencies use unfair or unlawful practices. Many consumer protection organizations, including the Alliance for Justice, feel that the CFPB should enforce the Dodd-Frank Wall Street Reform Act more often in order to reduce the amount of cases that go to arbitration.