Arbitration Attacked

The right of parties to avoid court and arbitrate contractual disputes comes from the Federal Arbitration Act of 1925. It provides that agreements to arbitrate disputes are enforceable. Decades after becoming a standard form of alternative dispute resolution, arbitration clauses were employed as a method to defeat class action lawsuits. Where parties agreed to arbitrate disputes, claims could still be brought, but on an individual basis in arbitration. New rules being promulgated by the Consumer Financial Protection Bureau or CFPB would allow class-action lawsuits, setting up the latest clash between the banking industry and consumers. The CFPB aims to prohibit financial companies from using mandatory arbitration clauses as a way to block class-action lawsuits, in which a large number of plaintiffs with similar complaints band together. Companies still would be able to require consumers to enter arbitration to resolve individual disputes. Critics maintain this will result in higher litigation costs for banks, which they will offset either by raising the costs of consumer loan products or reducing services. Arbitration clauses have become widespread in recent years, aided by a string of court rulings that have limited the ability of consumers to file lawsuits. The agency’s proposal would be the first significant check on arbitration since recent U.S. Supreme Court decisions that affirmed its widespread use. The landmark Supreme Court case, AT&T Mobility v. Concepcion, allowed businesses to enforce class-action waivers in contracts. The new rule is expected to take effect next year after a 90-day public comment period to federalregistercomments@cfpb.gov and drafting of the final rule. See more here-- http://on.wsj.com/24Cl284 and http://nyti.ms/1QSVNF0 and http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_Rulemaking.pdf