BUYING OR SELLING

WASHINGTON, D.C. – July 11, 2017 – The Consumer Financial Protection Bureau (CFPB) announced a new rule to ban companies from using mandatory arbitration clauses.

Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue them. By forcing consumers to give up or go it alone – usually over small amounts – CFPB says that companies can sidestep the court system, avoid big refunds and continue harmful practices.

While the rule could affect clients' secondary financial agreements, Florida Realtors' listing agreements don't default to the use of arbitration.

"The arbitration clauses contained in the listing agreements we have for Realtors require an opt-in – meaning all parties have to initial next to the spot, indicating they are agreeing to arbitration as the resolution," says Meredith Caruso, manager of member legal communications for Florida Realtors. "Arbitration clauses themselves aren't bad, just a different avenue. The issue the CFPB focused on was that the arbitration clauses ended up prohibiting class action lawsuits."

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," says CFPB Director Richard Cordray.

Hundreds of millions of consumer-financial contracts have mandatory arbitration clauses. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators), except for individual cases brought in small claims court. While these clauses can block any lawsuit, companies almost exclusively use them to block group lawsuits, also known as "class action" lawsuits.

With group lawsuits, a few consumers can pursue relief on behalf of everyone who has been harmed by a company; but most mandatory arbitration clauses force each harmed consumer to pursue individual claims, no matter how many other consumers have also been harmed. However, consumers almost never spend the time or money to pursue formal claims when the stakes are small.

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Released in March 2015, the study found that credit card issuers representing more than half of all credit card debt and banks representing 44 percent of insured deposits used mandatory arbitration clauses – but three out of four consumers did not know whether their credit card agreement had an arbitration clause.

More information about the CFPB's arbitration rule is available online, along with the text of the full arbitration ruling and a YouTube video.