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US proposes ending forced arbitration

Richard Cordray heads the US consumer bureau.Associated Press/File 2015

NEW YORK — Suing your bank or debt collector might be getting a whole lot easier.

The Consumer Financial Protection Bureau is considering new regulations that would curtail a contentious practice called mandatory arbitration, which forces consumers to take disputes to a third-party referee instead of a court of law. It is something consumer advocates have long argued does a disservice to people who have disputes with banks, credit card issuers, and other financial service providers.

Many Americans don't know that, buried in the fine print, they've agreed not to sue financial institutions if, for instance, they dispute charges on their checking accounts or credit card bills. Instead, they must use binding arbitration.


Consumer advocates say arbitrators are often biased against consumers. Their rulings often can't be appealed.

The goal of arbitration was to lower the cost of resolving disputes. But what started off as a good idea became corrupted, critics say. Companies that did not like how an arbitration firm would rule would shop around, giving arbitration companies a reason to rule in favor of companies that hired them. And arbitration rulings were not transparent.

The federal agency's proposal follows years of scrutiny by financial regulators, state attorneys general, and consumer advocates.

''Companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers,'' said Richard Cordray, director of the bureau, in a statement.

The bureau does not propose banning arbitration; new rules would allow customers to sue as a group in a class-action lawsuit. Another proposal would force companies that use arbitration to submit those claims to the bureau so it could monitor the process and make sure it is fair. If a group of customers found they were victims of unfair practices they'd be able to pursue a class action.