The Consumer Financial Protection Bureau (“CFPB”) is reportedly considering implementing new regulations that would stop banks and other financial institutions from requiring consumers to settle disputes through binding arbitration. Currently, most consumers agree to resolve all fee and other disputes with financial institutions through arbitral proceedings when opening their accounts. Although engaging in arbitral proceedings normally saves both parties time and money, critics argue the current process is unfair to banking customers. For example, some consumer advocates apparently believe repeat party banking institutions stop using arbitrators who issue awards that are unfavorable to the financial institution and instead choose to shop around for a different arbitrator for future proceedings.

Typically, an arbitration award cannot be appealed. According to CFPB Director Richard Cordray, the current system not only encourages arbitrators to rule in favor of banks, but also allows them to “sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers.” Still, the CFBP proposal would not wholly ban arbitration. Instead, it would provide consumers with the opportunity to engage in class-action litigation against financial institutions in certain instances.

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