Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers

Posted: 13 Jun 2016  

Martha T. McCluskey

University at Buffalo Law School

Thomas Owen McGarity

University of Texas at Austin - School of Law

Sidney A. Shapiro

Wake Forest University School of Law

James Goodwin

Center for Progressive Reform

Mollie Rosenzweig

Center for Progressive Reform

Date Written: May 1, 2016

Abstract

Forced arbitration clauses have become almost unavoidable in contracts for financial services and products ranging form credit cards to private student loans. This report examines how the financial services industry uses these clauses to defeat consumers' rights and evade accountability for their wrongdoing.

As the report explains, the forced arbitration process harms consumers by relegating them from the civil justice system to an inferior forum for vindicating their rights. In contrast to the courts, forced arbitration tends to be secretive, less independent of industry, more prone to erroneous and arbitrary rulings, more likely to discourage the pursuit of claims with procedural barriers, and more likely to provide inadequate relief for compensating victims of corporate wrongdoing.

The report examines the 2016 proposal by the Consumer Financial Protection Bureau (CFPB) to limit the use of forced arbitration clauses in contracts for financial services and products, and finds that the proposal is consistent with the agency's statutory obligation to protect consumers. The report goes on to explain that the CFPB would better fulfill its statutory mandate by revising its proposal to include stronger protections for consumers.

Keywords: Access to Courts, Civil Justice, Arbitration, Class Action, Cost-Benefit Analysis, Consumer Rights, Corporate Accountability

JEL Classification: D18, D6, D61, D63, D78, G21, G28, G38, K12, K2, K23, K41, K42

Suggested Citation

McCluskey, Martha T. and McGarity, Thomas Owen and Shapiro, Sidney A. and Goodwin, James and Rosenzweig, Mollie, Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2784510 or http://dx.doi.org/10.2139/ssrn.2784510

Martha T. McCluskey

University at Buffalo Law School ( email )

O'Brian Hall
Buffalo, NY 14260-1100
United States
716-645-2326 (Phone)
716-645-2064 (Fax)

Thomas Owen McGarity

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
512-232-1384 (Phone)

Sidney A. Shapiro

Wake Forest University School of Law ( email )

P.O. Box 7206
Winston-Salem, NC 27109
United States
336-758-5430 (Phone)

James Goodwin (Contact Author)

Center for Progressive Reform ( email )

455 Massachusetts Ave., NW, #150-513
Washington, DC 20001
United States

Mollie Rosenzweig

Center for Progressive Reform

Washington, DC 20005
United States

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