Forced Arbitration Hurts Consumers Fighting Credit Card Companies and Other Financial Service Providers

The credit card data breach reported by Target just before Christmas could harm millions of the retailer's customers. In response, several consumer class action lawsuits have been filed. Target could also eventually face significant commercial litigation from banks and credit card companies that experience financial injury as result of the data breach.

This incident typifies the need for and the benefits of consumer class action lawsuits. Class action lawsuits involve a large number of individuals who have similarly suffered due to the actions of a company. In the Target situation, for example, the credit scores of customers may be hurt if their credit information is stolen and used by others.

We of course don't know what the results will be for those actions, but we do know that in general individuals have benefited greatly from class action lawsuits.

Unfortunately, when it comes to dealing with financial products and services companies, consumers' legal rights have been eroding. Credit card companies, banks, and other financial service providers are increasingly using contract provisions that force consumers to arbitration and deny them class action litigation when disputes arise.

Fortunately, a provision on the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 calls for the Consumer Financial Protection Bureau (CFPB) to study this forced arbitration for consumer financial products, such as credit cards, checking accounts, and payday loans.

In December 2013, the CFPB issued a preliminary release of its findings. The news is not good for consumers who were forced to go outside of the court system to resolve their disputes.

First, very few consumers took the companies to arbitration. Since 2010, millions of consumers were subject to the forced arbitration clause. But the CFPB found only about 900 consumers went through the process between 2010 and 2012.

Furthermore, to compare outcomes between forced arbitration and class action lawsuits, the CFPB reviewed the settlements of eight class actions involving credit cards, checking accounts or payday loans between 2009 and 2012. In just those eight settled lawsuits, 13 million people were represented and over $350 million in payments were made to consumers.

Consumer class action lawsuits allow many people who have been harmed in the same way by large corporations to receive compensation for their damages; especially when those damages are relatively small. It is an efficient way to administer widespread justice while also putting an end to a company's negligent practices.

If you feel you've been wronged by a company, an experienced class-action attorney can review your legal options with you.