Why did the CFPB ban mandatory arbitration agreements? If you read their own release, it was because of credit cards. Here is what it says in the press release about the rule, citing evidence from its arbitration study: “The study showed that few consumers ever bring – or consider bringing – individual actions against their financial service providers either in court or in arbitration. Only about 2 percent of consumers with credit cards surveyed said they would consult an attorney or consider formal legal action to resolve a small-dollar dispute. As a result, the real effect of mandatory arbitration clauses is to insulate companies from most legal proceedings altogether.”
OK, but what about auto finance, either through a creditor or a dealer? Those are large dollar amounts. In fact, consumer advocates constantly remind us that auto purchases are the largest or second largest purchases people make. Wouldn’t they be more likely to use whatever means are available to settle a dispute and get restitution, including going to arbitration?
So why not just ban mandatory arbitration for credit cards? After all, the Wells Fargo credit card scandal is the latest rationale given for the ban. But that’s not how the CFPB rolls. It was created as a massive beast to oversee ALL consumer finance. Creating several smaller agencies, such as an Auto Finance Agency, one that would have included dealers in its portfolio, would have made more sense for everybody. But that didn’t happen and this is what we have.