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Enforceability of Mandatory Arbitration in Online Contracts

By Richard Raysman and Peter Brown
August 01, 2016

On May 5, 2016, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would limit the use of mandatory arbitration in certain consumer finance contracts. Specifically, the proposal focuses on such arbitration provisions that proscribe consumers from filing class action lawsuits. It would also permit consumers to bring class action suits against banks and financial service providers, even if the parties have an existing agreement that waives a right to such relief in favor of binding arbitration.'

The New York Times has described the use of mandatory arbitration as “stacking the deck of justice.” Conversely, according to business groups, class actions are inappropriate in small claims of this nature because they involve “issues that consumers actually care about, such as alleged overcharges [and] are unlikely to be classable because they are individualized disputes.”

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