Consumers Union files comments in strong support of CFPB rule to limit use of forced arbitration clauses against consumers

Experts

Senior Policy Counsel
Media Director

WASHINGTON, D.C. –  Consumers Union, the policy and mobilization arm of Consumer Reports, today filed comments in strong support of a rule proposed by the Consumer Financial Protection Bureau to limit the use of forced arbitration clauses by banks, credit card companies, lenders, and other financial services.

George Slover, senior policy counsel for Consumers Union, said, “This rule is an important step forward in curbing some of the worst abuses in the financial services marketplace.  While we believe more reforms are still needed, this will help restore consumer rights, improve transparency, and make the market fairer and safer for consumers.”

In May the CFPB unveiled its proposed rule to prohibit companies from putting forced arbitration clauses in new contracts that block consumer participation in class action lawsuits.

While the proposed rule does not bar all uses of forced arbitration as CU would prefer, the consumer organization said the rule would make a meaningful difference in consumers’ lives.

CU has long advocated against companies’ use of arbitration clauses, which are often tucked deep in the fine print of contracts and user agreements for consumer products and services. 

These clauses take away the rights of consumers to go to court over future disputes they might have with the company.  Instead of going to court and making their case before an impartial judge on a public record, consumers have to see an arbitrator, who is often chosen from a list created by the company.  The company can keep choosing that arbitrator for repeat business, so there’s a huge incentive for the arbitrator to favor the company.  This arbitrator is typically not required to follow established law or procedure.  The arbitrator’s decisions cannot be appealed, and are often kept secret.

In its comments to the CFPB today, CU pointed out how financial services and other companies have been increasingly taking advantage of a wrinkle in the law to use arbitration to block consumer access to the courts.  A 1925 statute, the Federal Arbitration Act, was designed so businesses could elect to settle their own disputes out of court if they wanted.  But, CU said, the law has been twisted into a weapon against consumers to force them to “agree” to give up their rights.  

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Contact:  Michael McCauley, mmccauley@consumer.org or 415-431-6747, ext 7606 (office) or 415-902-9537 (cell)

Consumers Union is the public policy and advocacy 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.