National Consumers League

National Consumers League applauds new CFPB proposed rule on arbitration clauses

May 5, 2016

Contact: NCL Cindy Hoang, cindyh@nclnet.org, (202) 835-3323

Washington, DC–The National Consumers League (NCL) applauds the Consumer Financial Protection Bureau (CFPB) for its recent proposal to restrict the use of forced arbitration clauses in consumer financial contracts.

The CFPB aims to prohibit financial companies from using mandatory-arbitration clauses as a way to block class-action lawsuits, in which a large number of plaintiffs with similar complaints band together. Companies would still be able to require consumers to enter arbitration to resolve individual disputes.

NCL agrees with CFPB Director Richard Cordray that the proposed rule would restrict forced arbitration that “effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”

Forced arbitration clauses have become standard in recent years because of a string of court rulings that have limited consumers’ ability to file lawsuits. A landmark Supreme Court case in 2011, AT&T Mobility LLC v. Concepcion, allowed businesses to enforce class-action waivers in their contracts. NCL joined other consumer groups in supporting Concepcion’s claims.   

There will be a 90-day comment period before the rule goes into effect.

The following statement may be attributed to NCL Executive Director Sally Greenberg:

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. The CFPB’s proposal will help to even the playing field for consumers in their interactions with financial institutions. The financial services industry often argues that arbitration is better for consumers than going to court. If that is true, that choice should be voluntary for consumers. If given the choice of arbitrating a claim or going to court as part of a class of consumers, consumers will choose the more advantageous route. Sadly, today they don’t have that choice because–with the exception of Bank of America–they are forced to sign away their right to go to court. Indeed, a 2015 CFPB study of six markets found that consumers filed few arbitration cases—an average of 600 a year. The CFPB said few consumers bring individual actions on small claims—either in court or in arbitration—because they aren’t aware of their legal rights or they find the process too time-consuming or troublesome.

The industry also claims that class actions will simply enrich plaintiffs’ lawyers, with consumers receiving little compensation. This is disingenuous—though individual consumers may not get large payouts, successful class action lawsuits have been very effective in changing unfair corporate practices. Moreover, when corporations stop hiring lawyers to write these clauses into contracts, perhaps consumers will no longer need the class action as a vehicle to protect their rights. Until then, consumers have every right to have legal representation to even the playing field in these financial service contracts.

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About the National Consumers League

The National Consumers League, founded in 1899, is America's pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.