Mandatory binding arbitration sucks, but most of us have agreed to it in numerous consumer contracts, especially with banks, credit card companies, payday lenders, etc. What mandatory binding arbitration means is that if you try to sue your credit card company for, say, reordering transactions to maximize overdraft fees, the company can pull you out of court and force you into private arbitration with no option to certify a class action.
The companies that might be affected are predictably arguing that eliminating mandatory binding arbitration will increase costs for consumers. But think about that for a second. Those costs happen when the company is accused of doing something wrong. Those are good costs. Let’s not kid ourselves, credit card companies and payday lenders are not looking out for consumers’ best interests. It’s the exact opposite. We want to be able to hold them accountable in court, and sometimes we need to file a class action in order to do that.
They also argue that individual consumers are better off in arbitration:
[C]onsumers who received payments through class-action settlements ended up with an average of only $32.35. Customers who won in arbitration received an average of $5,389.
This is true, but it doesn’t have anything to do with arbitration. You can always just opt out of a class action and bring your own claim in court or in an arbitration forum.
The ban is just theoretical at this point. The CFPB has put together a proposal (pdf) and a list of questions (pdf) for small business representatives. It will consider input from “the public, consumer groups, industry, and other stakeholders” before it moves forward.
As background, here’s the CFPB’s March 2015 report on arbitration provisions. And here are the highlights in user-friendly infographic form: