Consumer Financial Protection Bureau issues new arbitration rule

By Marrero, Chamizo, Marcer Law, LP,

Most Florida debtors know that financial institutions do not issue credit cards until consumers have agreed to a long list of terms. These conditions often include provisions that require any debt relief disputes to be settled through binding arbitration. Lenders prefer arbitration because it is less public, less expensive and more predictable than traditional litigation. However, advocacy groups have claimed that these provisions sidestep the courts and are unfair to consumers.

This criticism has been particularly severe when arbitration clauses have prevented consumers from filing class-action lawsuits. The Consumer Financial Protection Bureau addressed this issue on July 10 by issuing a new rule. Under the new CFPB rule, lenders may still include arbitration clauses in their terms and conditions, but they may no longer use them to thwart class-action litigation. Opponents of the rule say that trial lawyers will be its chief beneficiaries as resolving disputes in court generally takes longer and costs more.

A report released by the CFPB in 2015 revealed that arbitration agreements are favored by banks that account for 44 percent of the nation’s insured deposits and credit card companies that hold more than half of all revolving debt. The new CFPB rule is the latest in a series of efforts by lawmakers and regulators to curtail mandatory arbitration. Congress has already acted to forbid these clauses in mortgage agreements and loan contracts entered into with members of the U.S. military. The new arbitration rule should go into effect in about eight months, according to the CFPB.

Lenders can be especially difficult to deal with when consumers fall behind on their payments. Allegations of harassment and abuse are often leveled at bill collectors, and cash-strapped regulators are not always able to enforce the provisions of consumer protection laws like the Fair Debt Collection Practices Act. Attorneys with debt relief experience could explain to individuals struggling with unmanageable financial situations how filing for personal bankruptcy provides the opportunity for a fresh start.