Michael Barr, the Treasury Department’s point person in the development of the Dodd-Frank Act, is urging the Securities and Exchange Commission and Consumer Financial Protection Bureau to use their Dodd-Frank given powers to curb mandatory arbitration clauses.

The clauses diminish legal protections and lessen the recovery from wrong-doers by borrowers and investors along with weakening deterrence, argues Barr in the latest issue of the New York University Journal of Law & Business.

“Oftentimes, arbitration clauses preclude the award of punitive damages,” he added. Barr is currently a law professor at the University of Michigan.

Claiming consumers don’t consent to mandatory arbitration knowingly and willingly, Barr said the regulatory agency should give them the power to opt-out of the agreements easily at any time.

He also urged embedding protections in the clauses to ensure the arbitrations provide a fair and meaningful method for resolving claims.

While noting businesses regularly force arbitration on borrowers and investors because the process gives them an edge in strength, Barr said they avoid them in business-to-business contracts. “Those strategic advantages are diminished when dealing with other sophisticated parties,” he adds.

The former Treasury official said private lawsuits provide a check on lax enforcement by the SEC, CFPB and other federal agencies.

Barr said the SEC has yet to use its Dodd-Frank authority to prohibit mandatory arbitration clauses in contracts between investment advisors and investors.

However, the law professor pointed out the agency reportedly pressured the Carlyle Group advisory firm to remove a mandatory arbitration clause from its initial public offering on the rationale that the fiduciary standard for advisors bars them.

He added Financial Industry Regulatory Authority (Finra) recently rejected a Schwab broker-dealer contract on the grounds that it contained a bar on class action litigation.