Consumers Fare Better Under Class Actions Than Arbitration

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Consumers Fare Better Under Class Actions Than Arbitration

WASHINGTON - Many financial institutions use forced arbitration clauses in their contracts to block consumers with disputes from banding together in court, instead requiring each consumer to argue their case separately in private arbitration proceedings. Recently, members of Congress introduced legislation to repeal a new rule from the Consumer Financial Protection Bureau that restores consumers’ ability to join together in class action lawsuits against financial institutions.

Opponents of the rule have suggested that the CFPB’s own findings show consumers on average receive greater relief in arbitration than class action lawsuits. In a new fact sheet, EPI Policy Director Heidi Shierholz explains that this is enormously misleading. While the average consumer who wins a claim in arbitration recovers $5,389, consumers win only 9 percent of disputes. Overall, the average consumer who enters arbitration with a bank or lender is ordered to pay $7,725. Furthermore, Shierholz points out, evidence shows that allowing consumers to join together in court does not increase consumer costs or decrease available credit.

“The numbers couldn’t be more clear—class actions return hundreds of millions of dollars to consumers, while forced arbitration only pays off for banks and lenders,” said Shierholz. “Congress should side with the American people, not big banks, and vote down this capricious attack on consumer freedom.”

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The Economic Policy Institute, a nonprofit Washington D.C. think tank, was created in 1986 to broaden the discussion about economic policy to include the interests of low- and middle-income workers. Today, with global competition expanding, wage inequality rising, and the methods and nature of work changing in fundamental ways, it is as crucial as ever that people who work for a living have a voice in the economic discourse.

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