CU Urges Senators to Reject Repeal of CFPB Rule Limiting Forced Arbitration By Financial Firms

Experts

Senior Policy Counsel
Media Director

Senate May Vote Soon On Resolution To Repeal CFPB’s Arbitration Rule

September 27, 2017

WASHINGTON, D.C. – Consumers Union, the policy and mobilization arm of Consumer Reports, urged Senators to oppose efforts to repeal the Consumer Financial Protection Bureau’s new rule prohibiting banks, credit card companies and other financial firms from forcing consumers into mandatory arbitration to settle disputes, and cutting off their ability to go to court.  The Senate may vote soon on a Congressional Review Act resolution to abolish the CFPB’s rule before it even goes into effect.

In a letter sent to Senators, Consumers Union noted that the rule is a measured and carefully crafted response to the increasingly prevalent use of forced arbitration, in which consumers sign away their legal rights just by signing up for a loan or other financial service.  Forced arbitration provisions are often found deep in the fine print of contracts, and even when consumers spot them, they have no choice but to accept this restriction in order to get the financial service.

“Banks and financial firms shouldn’t be allowed to stack the deck against consumers and use forced arbitration to get away with causing widespread harm,” said George Slover, senior policy counsel for Consumers Union.  “The recent Equifax and Wells Fargo scandals show why it’s so important for consumers to have the right to hold financial firms accountable in court.  The CFPB’s rule restores the basic right of consumers to join with others who’ve been defrauded, or treated unfairly or recklessly, so they can get the relief they deserve.”

Americans were alarmed earlier this month by revelations of the massive Equifax data security breach, involving compromised social security numbers and other sensitive information of about 143 million consumers. Then they learned that the credit bureau’s terms of service contained a forced arbitration clause that could restrict their rights if they signed up for credit monitoring and other services.  Public outrage pressured Equifax to announce that it would not enforce the arbitration clause in this case.

Similarly, Wells Fargo originally used a forced arbitration clause in its standard contract to block consumers who had phony bank and credit card accounts opened in their names from seeking relief in court.  After the CFPB uncovered the scope of the fraud and fined the company, negative publicity over the scandal prompted Wells Fargo to finally relent and settle the claims.

Consumers Union’s letter points out that arbitration proceedings and their outcomes are generally required to be kept secret.  Established law can be disregarded entirely, and there is no right to appeal.  Forced arbitration allows the financial company and its lawyers to construct an arbitration process that is unfairly slanted in favor of the company, leaving consumers no choice other than to accept arbitration as part of a take-it-or-leave-it contract.

Under the CFPB’s rule, financial firms cannot block consumers who have suffered from widespread harm from banding together in a class action to seek relief in court.  This is essential because if consumers cannot combine their claims, the costs of bringing them individually are often too high, which allows the company to evade legal accountability.  The CFPB’s rule does not prevent financial firms and their customers from voluntarily agreeing to use arbitration as an alternative for resolving a dispute as long as they make that agreement after the dispute arises.  This gives the consumers a better opportunity to see what’s at stake so they can freely decide if the arbitration procedure is fair and workable.

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Consumers Union is the policy and mobilization division of Consumer Reports.  Consumers Union works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace. Consumer Reports is the world’s largest independent product-testing organization.  Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually.  Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and other publications.