U.S. dealerships, which increasingly ask car buyers to sign binding arbitration agreements in the finance and insurance office, soon could be barred from using that dispute-resolution provision.
The Consumer Financial Protection Bureau is nearly a year into its public inquiry into how such arbitration clauses affect consumers and financial services companies. Congress required the study as part of the Dodd-Frank Act and gave the bureau power to make regulations to protect consumers.
The scrutiny has some prominent dealership legal and compliance experts warning that today's widespread use of the agreements in vehicle sales is likely to end. Nearly 40 percent of dealers responding to a recent unscientific Automotive News survey also expressed concern that they soon will lose the arbitration option.
"I think arbitration is on its last legs," said Tom Hudson, a partner in the Hudson Cook law firm in Hanover, Md., who predicts the bureau could issue such a ruling before year end.
For dealers, the end of arbitration would mean the loss of a tool they say speeds up dispute resolution, cuts costs, helps keep them out of court and minimizes the risk of class-action lawsuits. Consumer advocates say the end of arbitration would put dealers and consumers on a more level playing field in a court of law.
The potential change is causing concern among dealer principals, dealership compliance directors and finance directors. Dealerships typically ask consumers to agree to arbitration in a stand-alone agreement or as part of the retail installment sales contract signed in the F&I office.