Study shows arbitration is not good for consumers

The Consumer Financial Protection Bureau recently completed a study that may be of particular interest to Texas credit card holders. The research examined the impact of arbitration agreements for financial customers and found that they do, in fact, prevent lawsuits. However, in most cases that are resolved in arbitration, they are decided in favor of the corporation and not the customer.

In cases that went to arbitration in 2010 and 2011, customers were ordered to pay nearly $3 million. On the other hand, customers were only awarded $190,000 in debt forbearance and $175,000 in damages. The study also found that the arbitration clause was used to prevent class action lawsuits from being filed against credit card companies in 65 percent of cases.

Despite the claims of credit card companies that arbitration helps keep costs low for consumers, this study found that there was no significant difference in costs for those financial institutions that had an arbitration clause and those that discontinued the practice. As part of the study, researchers interviewed credit card holders to find out whether they knew what an arbitration clause is and if their credit card agreements contain one. About 75 percent of those who were aware of what arbitration means did not know whether their rights to bring a lawsuit against their card issuer were taken from them with an arbitration clause.

Credit card customers who are unable to sue due to an arbitration agreement may be stuck with debt acquired due to fraud or other unresolved disputes with the card issuer. An attorney who focuses on bankruptcy law might be able to assist a client who wants to reduce or eliminate debt they cannot pay. Bankruptcy law offers options that arbitration does not and might be a good choice for those who don’t win their case with the arbitrator.