Consumer Protection and Arbitration Clauses


For Chicago consumers who have credit card debt, private student loans, payday loans, and other accounts, arbitration clauses may pose serious limitations, according to a recent article in U.S. News & World Report. Indeed, the Consumer Financial Protection Bureau (CFPB) issued a report urging consumers to take a close look at their contracts to determine whether they have arbitration clauses.
When you’re dealing with debt or financial dispute that could lead to personal bankruptcy, it’s important to discuss your case with an experienced Oak Park consumer protection attorney.
Pitfalls of Arbitration Clauses for Consumers
First, what is an arbitration clause? When it comes to consumer contracts, it’s a clause that “requires consumers who have a dispute with their phone carrier or financial institution to bring their disputes before a private arbitrator, not before a court.”
What kinds contracts typically contain arbitration clauses? According to the article, some of the following types of consumer contracts frequently have arbitration clauses, and often without the consumers even realizing it:
·      Cell phone plans
·      Credit cards
·      Prepaid credit cards
·      Checking accounts
·      Private student loans
·      Payday loans
Why does it matter if you have a contract that contains an arbitration clause? In short, arbitration clauses tend to hurt consumers but to help big financial institutions. To be sure, arbitration means that consumers won’t have the option for a jury trial, they won’t have much of an opportunity to gather evidence against the creditor or business with whom they have a contract, and they won’t get the opportunity for an appeal. In addition, arbitration clauses frequently “ban consumers from banding together in class actions, in which one or two consumers asset the claims of the entire group.”
In other words, consumer rights appear to be limited by arbitration clauses, according to numerous consumer advocates. In particular, the limitation on class actions can be especially damaging, given that, often, “the only effective way to keep companies from chiseling people out of small amounts of money . . . is to permit class actions.” How does that work? According to U.S. News & World Report, “when 1 million people with the same $30 claim can band together, consumers can spread out the cost of the case and have a realistic weapon for deterring wrongdoing.”
Legality of Arbitration Clauses
Are arbitration clauses legal? In short, the answer is yes. And financial institutions emphasize that, if consumers don’t want to enter into a contract that contains an arbitration clause, “they are free not to purchase the company’s product.” And the U.S. Supreme Court agrees, requiring courts to “enforce consumer arbitration clauses even when the cost of individual arbitration exceeds the recovery.”
Yet most consumers don’t realize that they’re signing contracts with arbitration clauses. Even if they do, most simply don’t understand the consequences of required arbitration. And the chances are high that everyone reading this blog currently has a contract that contains an arbitration clause. According to the CFPB report, “99.9 percent of consumers with cell phones have such clauses, as do 92 percent of prepaid cards, 86 percent of private student loans, and 53 percent of credit cards.”
Arbitration clauses are only one recent issue about which the CFPB has released a report. Consumers across Illinois regularly face issues of consumer fraud and abusive debt practices. If you have questions or concerns about your rights as a consumer, contact a Chicago consumer protection lawyer today to learn more about how we can assist you.
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