On 5 May, the US Consumer Financial Protection Bureau released a report proposing the prohibition of mandatory arbitration clauses in consumer contracts. Click here to read the full report.

In the US, many standard consumer contracts, for instance for credit cards and bank accounts contain arbitration clauses, which may prevent consumers from bringing class actions against their financial institution or bank in the event of wrongdoing. Where they are effective, such clauses will generally require consumers to bring individual actions against the relevant bank or financial institution, which is difficult and cost prohibitive for individual consumers.

If adopted, the proposed reforms are likely to have an impact on millions of consumer contracts across the US, a jurisdiction renowned for class action litigation, and developments will be watched with interest in many other other jurisdictions.

In Australia, arbitration clauses in consumer contracts may be considered ‘unfair terms’ and therefore prohibited under the Australian Consumer Law. For more discussion in relation to the Australian legal position, see DLA Piper’s recent Arbitration Update on Arbitration Clauses in Standard Form Consumer Contracts (April 2016).