To the chagrin of U.S. credit card issuers, the Consumer Financial Protection Bureau (CFPB) has
proposed rules prohibiting mandatory arbitration clauses. The CFPB says these widely used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts.
Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also gave the Bureau the power to issue regulations that are in the public interest, for the protection of consumers, and consistent with the study.
Released in March 2015, the CFPB’s study showed that very few consumers ever bring – or think about bringing – individual actions against their financial service providers either in court or in arbitration. The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies. According to the study, class actions succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct.
The study showed that at least 160 million class members were eligible for relief over the five-year period studied. Those settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses. In addition, these figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. However, where mandatory arbitration clauses are in place, companies are able to use those clauses to block class actions.
The Consumer Federation of America (CFA) urged members of the Senate Committee on Banking, Housing and Urban Affairs to pay particular attention to the harm caused by abusive products and practices and support the Bureau’s work to make the financial marketplace fair and transparent.
The National Consumers League (NCL) says the CFPB’s action is a welcome response to these odious forced arbitration clauses found in the vast majority of consumer contracts. These clauses remove consumers’ right to hold companies accountable when they have engaged in corporate wrongdoing and are especially unfair when they limit class actions.
Consumer Action commended the CFPB for taking this crucial step to limit big banks’ and other financial companies’ efforts to escape accountability for breaking the law, and urges the agency to use the full force of its authority to restore consumers’ right to choose how to resolve disputes with financial institutions in this, and every, context in the final rule.
There is a 90-day comment period before the rule goes into effect.
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