The Consumer Financial Protection Bureau (CFPB) is seeking information regarding forced arbitration clauses found in contracts for consumer financial products. By understanding how arbitration affects consumers, CFPB will decide whether rules are necessary to govern arbitration requirements in financial agreements.

Mandatory arbitration provisions require disputes be resolved in private hearings instead of a public courtroom, and have become prevalent in many consumer contracts. Arbitration clauses are mandated by corporations covering credit cards, bank accounts, gift cards and loans from payday lenders.

Last year, the Safe Checking in the Electronic Age project found that of 250 bank accounts at ten large banks, the majority contained forced arbitration requirements. Some clauses included language requiring the customer to cover the banks’ costs and expenses, even if the customer wins the arbitration.

For anyone wishing to share data or comment on the CFPB’s consumer arbitration questions regarding the prevalence of arbitration and the impact of particular arbitral proceedings during the public comment period, click here. All comments must be submitted to the CFPB by June 23.

first tuesday take

Although not technically forced, real estate agents and brokers are erroneously trained to encourage buyers and sellers to initial the arbitration provision as a “standard” practice. Arbitration is too commonly perceived as a customary component of real estate purchase and lease agreements with no risks and numerous benefits.

Thus, real estate professionals rarely counsel their client as to the myriad risks assumed by initialing the clause. Once the arbitration clause in a purchase or lease agreement is initialed, arbitration becomes mandatory to both parties as a matter of contractual obligation and may as well be forced.

The use of arbitration in financial disputes is flawed against the consumer, at best. Although arbitration is widely perceived as a desirable alternative to litigation, ignorance of its risks in relation to litigation is pervasive amongst agents.

Especially within the context of real estate transactions, arbitration dispute resolution (ADR) is perilous in that it is binding as drafted due to the absence of judicial review. An arbitrator’s decision is final and unappealable, even if made erroneously or through a misinterpretation of law, leaving disputants to assent to ADR decisions with no possibility for correcting errors.

Related article:
Bargaining for justice: arbitration and the loss of judicial review

first tuesday has long been opposed to arbitration as a means of resolving real estate transaction disputes. Arbitration in purchase agreements jeopardizes the legal standards of the real estate industry. Transactions settled through binding arbitration eliminate the legal precedent to which real estate professionals are trained and held.

To better protect buyers and sellers (along with their agents) from the risks of arbitration, it has always been first tuesday policy to keep our purchase agreements, as well as our entire catalog of real estate forms (with exception of fee agreements), free from the volatile arbitration provision.  Mediation in which a meeting of the minds is arrived at between the parties should be pursed first, then litigation if mediation fails.

Related article:
Bargaining for justice: deconstructing the arbitration provision

Re: Consumer Agency Looking Into Mandatory Arbitration