NEW YORK–The new rules enacted by the CFPB may not explicitly outlaw arbitration, but industry lawyers told The New York Times that they will effectively “kill the practice.”
“If this rule goes into effect, what we are going to see is a huge avalanche of litigation and a loss to consumers of the benefits of arbitration,” Alan S. Kaplinsky, a lawyer with the firm Ballard Spahr in Philadelphia who is widely considered the father of arbitration clauses, told The New York Times.
Kaplinsky opposes the rule and said arbitration offers a faster and more efficient way to resolve legal disputes.
To get beyond anecdotal evidence related to arbitrations, The New York Times noted it assembled its own database of arbitrations in a series of articles in 2015 that showed few people ever go to arbitration.
“In financial disputes, the numbers are particularly startling,” the Times reported.
In its investigation, The Times said it found that between 2010 and 2014, only 505 consumers — a fraction of the tens of millions of Americans whose financial contracts have arbitration clauses — went to arbitration over disputes of $2,500 or less.
“That reluctance is why one federal judge remarked in an opinion that ‘only a lunatic or a fanatic sues for $30’,” the Times said.
But money isn’t always the issue, the Times reported, noting that law professors and judges—event those appointed by conservative presidents—argue that class actions can push companies to get rid of questionable business practices.
“Big banks, for example, had to pay more than $1 billion to settle class-action lawsuits, which started in 2009, that accused them of monkeying with checking account policies to maximize the number of overdraft fees they could charge customers,” the Times said. “In the aftermath of the litigation, seven of the banks involved have adopted arbitration clauses to their contracts.”