WASHINGTON (12/13/13)--Credit cards and checking accounts have been early targets as the Consumer Financial Protection Bureau examines the use of arbitration clauses, and CFPB Director Richard Cordray on Thursday said the agency has "narrowed and specified many of the remaining areas" it will look in to as it continues to research the issue.
The Dodd-Frank Wall Street Reform Act requested that the CFPB study the use of arbitration agreements in consumer financial services contracts. As a first step, the agency requested suggestions on the scope, methods and data sources it should use in its study. The results of the study will be reported to the U.S. Congress.
Cordray made his remarks at a Dallas field hearing on the issue. A preliminary CFPB study released during the hearing found that few consumers file arbitration cases, as roughly 9 out of 10 clauses allow banks to prevent consumers from participating in class actions.
Cordray noted one of the most notable findings about arbitration clauses is the stark contrast in the types of institutions that use them. "On the whole, larger institutions are more likely to include an arbitration clause in consumer contracts than community banks or credit unions. That raises interesting questions about why smaller institutions and credit unions do not use arbitration clauses as frequently in these markets," Cordray said.
Arbitration clauses are very common across all prepaid card contracts--"regardless of whether they are offered by a larger or smaller player," he added. "In fact, smaller players are much more likely to use arbitration clauses in prepaid card contracts than they are in credit card or checking account contracts."
The Credit Union National Association has said it supports the CFPB's attempts to evaluate how the use of pre-dispute arbitration agreements impacts consumers, and agreed that the CFPB should analyze the types and frequency of claims that consumers bring in arbitration. However, CUNA added, the agency should also consider and minimize any potential burdens that may be imposed on credit unions as a result of the study.