Cellphone and credit card applications typically contain an arbitration clause that keeps you from suing the phone carrier or bank if a dispute arises. Often, the bank gets to pick the arbitrator. The federal government is looking to see if arbitration clauses give companies too much power.
If you have applied for a checking account, cellphone, or credit card, you have probably signed away some of your rights.
You may not even be aware that you have. In many cases, consumers agree to an arbitration clause that forfeits their right to a jury trial or class-action lawsuit if something goes wrong.
That means that if your cellphone carrier overbills you, you can't take the company to court. If the credit card company isn't moving to resolve a dispute, a threat to sue probably won't get you anywhere. Instead, you've agreed to have your case heard before an arbitrator who will make a binding decision.
Is that a good thing?
Companies that use arbitration clauses claim that the process is fair, and that it is faster and less expensive than litigation. It's also quite popular.
Of the 265 types of checking accounts offered by the 10 biggest banks, all but 10 required accountholders to waive the right to a jury trial, according to a 2010 study by the Pew Safe Checking in the Electronic Age Project. For 189 of those accounts, they also had to agree to have the dispute settled before a private arbiter chosen by the bank.
In the wake of that imbalance of power, the Consumer Financial Protection Bureau last month announced plans to study the use of arbitration clauses in financial contracts. The CFPB will analyze the kinds of claims that consumers bring in arbitration cases, the prevalence of arbitration clauses in agreements for consumer financial products, and what kind of an effect arbitration has on consumers and companies.
When it passed the Dodd-Frank bank reform bill, Congress gave the agency the power to create regulations that limit or end the practice.
The CFPB wants consumers to share their experiences and opinions about arbitration as part of its inquiry. Comments must be submitted by June 23, 2012. Information can be found here.
The US Supreme Court has sided with companies in favor of binding arbitration in two recent court cases.