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1.4.1 Prevalence

One of the more troubling problems for consumers today is the use of forced arbitration clauses in consumer credit and sales agreements. These clauses have spread rapidly and are now widespread.10

The Consumer Financial Protection Bureau (CFPB)’s 2015 report on arbitration in consumer financial products provides some important data on the prevalence of arbitration clauses in certain industries. The CFPB did not study all industries but found that, for certain industries like prepaid cards and payday loans, the majority of companies included arbitration clauses.11 The clauses are particularly prevalent in industries that are disproportionally predatory and that often target low-income consumers.

The Bureau also concluded that “almost all” agreements covering prepaid cards, payday loans, private student loans, and mobile wireless third-party billing agreements include arbitration clauses.12 Anecdotally, other kinds of contracts not studied by the CFPB, including automobile retail installment contracts, almost always include arbitration clauses.

Not all industries are the same in this regard. For example, because of a large settlement, in 2009 and 2010 many credit card issuers dropped their arbitration clauses. While many card issuers have since reinstated arbitration agreements, in 2015 at the time of the CFPB study just over 50% of credit card loans outstanding were subject to arbitration clauses.13

Footnotes

  • 10 {10} See, e.g., Jean R. Sternlight, Consumer Arbitration, in Edward Brunet et al., Arbitration Law in America: A Critical Assessment 127, 129 (2006) (“Throughout the 1990s, companies in a wide array of areas followed the lead of the securities industry and began to use form agreements to require their customers to agree to resolve all future disputes through arbitration rather than litigation.”); Theodore Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration’s Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts, 41 U. Mich. J.L. Reform 871, 883 (2008) (over 75% of consumer contracts with large telecommunications, financial services, and credit card companies include arbitration clauses); Karl E. Neudorfer, Defining Due Process Down: Punitive Awards and Mandatory Arbitration of Securities Disputes, 15 Ohio St. J. on Disp. Resol. 207 (1999) (“Customer agreements that do not contain boilerplate language requiring that all disputes be submitted to arbitration are now the exception to the rule. As a result, in the new era, arbitration is suddenly everywhere.”); Imre Stephen Szalai, The Prevalence of Consumer Arbitration Agreements by Today’s Top Companies, 52 U.C. Davis L. Rev. 233 (2019), available at http://lawreview.law.ucdavis.edu; Arbitration: Happy Endings Not Guaranteed, Bus. Wk., Nov. 20, 2000 (“Since 1995, cases filed with the American Arbitration Association, one of several arbitrators available, have increased dramatically. . . .”); David Hechler, ADR Finds True Believers, The Nat’l L. J., July 2, 2001 (“[M]ost of the organizations that collect ADR data report substantial increases in recent years. For example, of the cases filed between 1996 and 2000 with the American Arbitration Association, mediations and arbitrations combined almost tripled.”); Robert W. Snarr, Jr., No Cash ‘til Payday: The Payday Lending Industry, Federal Reserve Bank of Philadelphia Compliance Corner (First Quarter 2002) (noting that use of mandatory arbitration clauses appears to be “standard operating procedure among payday lenders and banks that partner with payday lenders to originate payday loans”). See also Mercedes Homes v. Colon, 966 So. 2d 10, 20 (Fla. Dist. Ct. App. 2007) (Griffith, J., dissenting) (“What we have begun to see is that virtually all consumer transactions, no matter the size or type, now contain an arbitration clause.”); Jean R. Sternlight & Elizabeth Jensen, Using Arbitration to Eliminate Consumer Class Actions: Efficient Business Practice or Unconscionable Abuse?, 67 Law & Contemp. Probs. 75 (2004) (“If one looks at the form contracts she receives regarding her credit card, cellular phone, land phone, insurance policies, mortgage, and so forth, most likely, the majority of those contracts include arbitration clauses, and many of those include prohibitions on class actions.”); Eric Berkowitz, Is Justice Served?, L.A. Times Magazine, Oct. 22, 2006, at 22 (noting that recent study found that 55.1% of all consumer contracts have arbitration clauses).

  • 11 {11} Consumer Fin. Prot. Bureau, Arbitration Study, Report to Congress Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a), at § 1.4.1 (Mar. 2015), available at http://files.consumerfinance.gov.

  • 12 {12} Id.

  • 13 {13} Id.