WASHINGTON, DC - Today, Congresswoman Bonnie Watson Coleman (NJ-12) commended the Consumer Financial Protection Rule for their proposed rule prohibiting mandatory arbitration clauses that force consumers into secretive negotiations which prevent them from seeking justice in court, and urged the CFPB to expand the types of contracts covered under the rule.
“In addition to limiting access to justice, these forced arbitration clauses also prohibit consumers from banding together in class action suits,” Watson Coleman wrote in a letter to CFPB Director Richard Cordray. “The proposed rule to prohibit mandatory arbitration clauses in certain agreements and lift class action bans is an important step in shielding consumers from abusive practices. “I urge the Bureau to use its full statutory authority to ensure that consumers have all the protections of our legal system during disputes with corporations.”
Almost all consumer financial products and services, like credit cards, checking accounts, and loans, are subject to a standard-form written legal contract. More and more companies have included mandatory arbitration agreements that assign a privately appointed individual to resolve any claims that arise – circumventing the state and federal courts systems that most consumers assume they can use in the event of a dispute.
A 2015 report from the CFPB found that despite growing prevalence of mandatory arbitration clauses, 75% of consumers surveyed did not know whether they were subject to mandatory arbitration in their financial contracts, and fewer than 7% of those surveyed understood that the clauses restricted their ability to bring suit. The report also found that that less than 2% of consumers were aware that they had waived their right to participate in class action suits.
The CFPB’s proposed rule applies to many of the consumer financial products overseen by the CFPB, and would prevent banks and other financial companies from using mandatory arbitration to prevent class-action lawsuits. The proposed rule would continue to allow mandatory arbitration for consumers pursuing individual claims. When the rule was announced earlier this month, Director Cordray noted, “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”
“In the financial sector and every other industry, mandatory arbitration is a trap that keeps consumers from seeking justice, and keeps corporations from being held accountable. We have a stake in ensuring consumers are treated fairly, and in keeping companies from blindsiding Americans who have no idea what they’ve agreed to. We have to put a stop to these practices.”