Bridgeforce Law, P.C. and Bridgeforce Inc. review the recent CFPB Arbitration
Study focused on mandatory arbitration provisions in consumer contracts
and provide highlights and required next steps for the financial industry.
Chadds Ford, PA, March 11, 2015 – Bridgeforce Law, P.C. and Bridgeforce Inc. respond to the CFPB’s
Arbitration Study, released March 10, 2015. The study was conducted as
required by Section 1028 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. The CFPB explained that prior to this study, most of the
empirical work related to arbitration was not concentrated on consumer
finances. Therefore, this study focused on mandatory arbitration provisions
found in various consumer financial contracts for credit cards, prepaid
credit cards, storefront payday loans, checking accounts, private student
loans, and mobile wireless contracts. Typically, these provisions waive
consumers’ ability from bringing class-action lawsuits against companies,
and instead permit consumers to resolve their complaints through arbitration.
The CFPB’s director, Richard Cordray, stated that “these arbitration
clauses restrict consumer relief in disputes with financial companies
by limiting class actions that provide millions of dollars in redress
each year.” The study determined that, in approximately 67% of the
disputes, companies have used arbitration to protect against class action lawsuits.
Mandatory arbitration clauses touch the majority of consumers, as these
provisions are present in a number of common financial contracts. To that
point, the CFPB determined the following:
Approximate Percentage of Contracts Surveyed that Contain an Arbitration Clause
Storefront Payday Loans
Private Student Loans
According to the study, nearly 75% of consumers surveyed by the CFPB were
unaware whether the contracts they signed included an arbitration clause.
Of the consumers surveyed, fewer than 7% actually understood that an arbitration
clause would preclude them from suing the company.
The CFPB also claimed that the study proved that there is no strong evidence
that supports the proposition that arbitration saves consumers money.
Per the CFPB’s study, there was a significant difference in consumers’
monetary relief under arbitration versus class action lawsuits. Of the
1,060 financial product arbitrations filed in 2010 and 2011, consumers
received $365,000 in damages from the companies, while the companies received
$2.8 million from consumers. Conversely, in the last five years, approximately
160 million consumers have been awarded nearly $2.7 billion in damages
resulting from class actions.
“On a tactical level, the CFPB study will cause financial institutions
to revisit their consumer finance contracts,” predicts J. Kurtis
Kline, managing partner of Bridgeforce Law.
Commentators speculate that there are a number of options the CFPB could
undertake if and when it enacts new rules related to the mandatory arbitration
provisions. For example, the CFPB could choose to prohibit class action
waivers which would prevent consumers from waiving away their right to
join a class action suit. Further, the CFPB could prohibit arbitration
clauses in general. While the CFPB has not yet issued any new rules in
this regard, this study clearly signals the CFPB’s intention to
focus on this topic.
“In the event companies can no longer waive class actions nor stipulate
to arbitration, what were previously boilerplate contractual provisions
will play a more dominant role, such as jurisdiction and venue. For example,
without arbitration, it will become increasingly more important for companies
to select a more strategic jurisdiction and venue,” explains Kurt.
“The CFPB has clearly set its sight on mandatory arbitration practices.
We recommend that clients get in front of this by mirroring the analyses
that the CFPB has completed in this study and completing focused risk
assessments within this area,” notes Brian Reiss, Bridgeforce President.
For more information about the CFPB’s Arbitration Study and its review
of arbitration provisions in financial contracts, go to the March 10,
2015 study at the CFPB’s website.
Click here to see the study directly,
To learn more about the Bridgeforce insights on the study, contact Kurt Kline
firstname.lastname@example.org or Brian Reiss at
About Bridgeforce Inc.
Bridgeforce is a specialized multi-national consulting firm serving a variety
of clients involved in almost all aspects of the consumer and small business
lending and payments space. Over 75 percent of Bridgeforce consultants
come directly from client-side leadership positions across multiple parts
of the credit lifecycle. Combined with subject matter expertise in operations,
technology, strategy and regulatory issues, Bridgeforce has the knowledge
and experience to make the hard choices in developing and implementing
best-fit solutions that are both achievable and lower the risks of execution
to ensure sustainability. Bridgeforce success can be attributed to a culture
fostering innovation and evolving experienced-based best practices recognized
within the industry. For more information, visit
About Bridgeforce Law, P.C.
Bridgeforce Law is a boutique law firm focused on financial services, working
with a variety of companies with legal and/or operational issues related
to consumer and small business lending and payments. Bridgeforce Law works
collaboratively with clients to provide legal and practical solutions,
and will frequently call upon consultants when real-life operational experience
will provide an enhanced client experience and help move business forward.