Forced Arbitration Denies Consumers a Fair Hearing

Center for Responsible Lending
June 4, 2009

Consumers have the deck stacked against them when they are forced into mandatory arbitration by their credit card issuer or other financial services provider, an analysis by the Center for Responsible Lending confirms.

Many consumers don't even know that the contracts they sign for most credit cards, auto loans and other small loan products come with hidden clauses that require they use  arbitration rather than the courts if a complaint arises. A recent poll shows Americans believe they should have the right to pursue claims in court if they want.

The CRL analysis, "Stacked Deck," details some of the forces working against an individual's ability to receive a fair hearing during arbitration. Among them: 

• Individual arbitrators have a strong incentive to favor the firms that provide them with repeat business over an individual consumer they may never see again.
• Companies win a favorable ruling in arbitration far more often than consumers.
• Companies involved in the most arbitration cases—and therefore in creating the most business for arbitrators─consistently receive more favorable rulings than  firms involved in fewer cases.

CRL recommends that, before signing a contract, borrowers read the fine print, ask questions and try to opt-out of arbitration clauses. And they should keep in mind that such clauses may not always be enforceable.

The report is available at: http://www.responsiblelending.org/credit-cards/research-analysis/stacked_deck.pdf.

For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.or Charlene Crowell at (919) 313-8523 or charlene.crowell@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.