Have you ever used a credit card? Or signed up for a phone plan? Opened a bank account? Chances are, you also agreed to never sue the company that offered you the service.
A massive number of everyday services require us to agree with some kind of written contract. From more significant decisions like taking a loan, to the most trivial, like updating iTunes.
The government is now stepping in to change this practice.
How many times have you read the whole agreement? For most people, the number is frighteningly close to zero.
But if you did, chances are you may have run into something like this:
“You and _______ are each waiving the right to a trial by jury or to participate in a class action. Any dispute, claim, or controversy shall be determined by binding arbitration.”
It basically means you can’t sue and any dispute would be resolved by a private party in the so-called arbitration. And arbitration may not be what you want.
The federal Consumer Financial Protection Bureau (CFPB), set up in 2008 in response to the financial crisis, found the use of such arbitration clauses extremely common in certain fields.
For example, virtually the whole mobile wireless market was covered by arbitration clauses.
Over half of all outstanding credit card loans were issued under agreements that include such a clause.
The clause also popped up when opening a checking account, covering 44 percent of all insured deposits.
The CFPB released its results in a study last year, using data from 2014 and prior.
The bureau now proposes a rule that would prohibit companies from including arbitration clauses that would prevent consumers from class action—but only in their future agreements, not existing ones.
That will mean providers can still have arbitration clauses, but class action would be the one way to sidestep them.
However, the rule would only apply to certain financial products and services, such as:
- checking accounts
- credit cards
- check cashing
- money transfers
- car lease extensions
The new rule would not help you to start a class action lawsuit against, for example, Netflix (which also has the clause in its user agreement).
It also won’t apply to government institutions.
In addition, the CFPB rule would require providers of financial products and services to give the agency copies of certain documents from arbitrations, like the initial claim and counterclaim and the judgment or award, if any, issued by the arbitrator. The CFPB would publish some form of the arbitration results to provide greater transparency.
