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The Consumer Financial Protection Bureau, or CFPB, was created by the federal government as a result of passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate financial products and protect consumers in the market.

What is “forced arbitration?”

Forced arbitration refers to clauses in employer-employee or buyer-seller contracts that restrict the employee’s/buyer’s right to sue for breaches of contract. Typically, the clauses state the consumer cannot take the company to court or participate in a class-action lawsuit, instead requiring all issues to be handled by an arbitrator of the company’s or seller’s choosing.

These clauses can be found in all types of contracts, from credit cards, to cell phones, to physician/provider contracts. A 2015 report done by the CFPB found that seven of the eight largest facilities-based mobile wireless providers covering almost all subscribers used arbitration clauses in their 2014 customer agreements. The same report found larger banks are more likely to include arbitration clauses in their consumer credit card contracts and their consumer checking contracts. The report states that “while less than 16 percent of issuers include such clauses in their consumer credit card contracts, just over 50 percent of outstanding credit card loans are subject to them.”

The CFPB is fighting against binding arbitration agreements in buyer-seller contracts and has proposed a rule to ban the restriction of class-action lawsuits with the argument that it’s unfair and an infringement on consumer rights. Opponents say the CFPB doesn’t have the power to make that decision, citing a 2015 Supreme Court ruling allowing forced arbitration under the Constitution.

Forced arbitration clauses were also recently banned by the Department of Health and Human Services. A new rule issued last month regarding arbitration in nursing homes  prohibits long-term care facilities that accept Medicare or Medicaid from forcing residents into arbitration.

So what should a consumer do?

  • Read the terms and conditions. Be on the lookout for terms like “mandatory arbitration,” “arbitrator,” and “court.”  If you can’t find the terms and conditions, ask a customer service representative. Terms and conditions should be clearly stated and conspicuously placed in contracts and product and services written materials..
  • Know what you are signing. Read the documents provided to you and seek legal counsel if there are questions regarding contract wording. If you’re not sure about something or find a forced arbitration clause, , talk to a lawyer about the right course of action.
  • If you refuse to sign the clause and the merchant won’t remove it, consider looking elsewhere for the product or service.

If you have additional questions, contact the Office of Consumer Affairs and Business Regulation by calling our Consumer Hotline at (617) 973-8787, or toll-free in MA at (888) 283-3757, Monday through Friday from 9 am-4:30 pm. Follow the Office on Facebook and Twitter, @Mass_Consumer. The Baker-Polito Administration’s Office of Consumer Affairs and Business Regulation along with its five agencies work together to achieve two goals: to protect and empower consumers through advocacy and education, and to ensure a fair playing field for all Massachusetts businesses. The Office also oversees the State’s lemon laws, data breach reporting, and home improvement contractor programs, and the State’s Do Not Call Registry.

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