A month after legislation was introduced to eliminate mandatory arbitration clauses in employment, consumer, civil rights and antitrust cases, a coalition of 58 lawmakers and several consumer advocate groups are urging the Consumer Financial Protection Bureau to take things a step further by protecting consumers from forced arbitration clauses in financial services contracts.
In the letter [PDF] sent to CFPB director Richard Cordray, the legislators – including Minnesota Sen. Al Franken and Georgia Rep. Hank Johnson, who introduced the Arbitration Fairness Act of 2015 in April – call on the Bureau to undertake rule-making to eliminate the use of forced arbitration clauses in financial contracts.
“These clauses force individuals into private binding arbitration as a condition of buying a product or service, and are designed to stack the deck against consumers and ensure that the final outcome of forced ambition is unreviewable by courts,” the letter states. “Forced arbitration clauses – often buried deep within the fine print of financial products and service contracts – harm American consumers by depriving them of their day in court even when companies have violated the law.”
The lawmakers cite the CFPB’s own recent study as compelling evidence of the “devastating effects of forced arbitration on tens of millions of consumers.”
That CFPB report found that forced arbitration clauses are prevalent in credit card, checking account, student loan, and wireless phone contracts.
The report included findings that a majority (53%) of credit cards currently have arbitration clauses, 92% of prepaid cards are subject to arbitration, and that while only 8% of banks and credit unions use the clauses, those few institutions are so large they represent 44% of all insured deposits.
For those reasons the lawmakers asked the CFPB to use its authority under the Dodd-Frank Act to issue rules prohibiting the use of forced arbitration clauses in financial contracts and “give consumer a meaningful choice after disputes arise.”
The use of arbitration clauses has skyrocketed by companies since 2011, when the U.S. Supreme Court affirmed that it was perfectly okay for companies to take away a consumer’s right to sue or their ability to join other wronged consumers in a class-action case by inserting a paragraph or two of text inside lengthy contracts.
Following the publication of the letter, several consumer advocacy groups – including Public Citizen, National Association of Consumer Advocates, Americans for Financial Reform and the National Consumer Law Center – gave their stamp of approval to the lawmakers’ request.
“It’s clear the lawmakers appreciate the powerful data in the CFPB report that prove forced arbitration is simply unfair and everywhere in consumer financial services,” Christine Hines, consumer and civil justice counsel with Public Citizen, said in a statement. “It is fitting for them to join consumers across the country calling on the CFPB to relieve us all of this burden by simply restoring what financial institutions have unjustly taken: our access to the court system.”
The advocates also expressed their opinion that such steps have been a long time coming.
“For far too long, corporations and Wall Street banks have been getting away with cheating and defrauding Americans without ever being held accountable for their actions with the use of forced arbitration,” Ellen Taverna, legislative director at the National Association of Consumer Advocates, said in a statement.
Lisa Donner, executive director of Americans for Financial Reform reiterated the importance of removing forced arbitration clauses, saying that “when a financial services company breaks the law and harms consumers with abuses like hidden fees or worthless add-on products, each individual consumer’s losses may be too small to make legal action feasible even if the total profit for the company is substantial. That’s one important reason why consumers need to be able to band together to seek justice under the law.”
The National Consumer Law Center echoed those sentiments, commending the legislators for recognizing the urgency for consumer protections and the authority the CFPB holds.
The letter to the CFPB comes just a month after Franken and Johnson introduced legislation that stipulates agreements to arbitration of employment, consumer, civil rights and antitrust disputes could only be made after the dispute has arisen.
The Act seeks to ensure transparency in civil litigation by protecting the integrity of Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act and others that are frequently skirted by companies using forced arbitration.
Additionally, the Act would continue to allow pre-dispute mandatory arbitration to continue in business-to-business agreements, and does not apply to collective bargaining agreements.
Groups Urge Consumer Financial Protection Bureau to Heed Lawmakers’ Call for Agency to Protect Consumers From Forced Arbitration [Public Citizen]
