Consumers Union urges Congress to reject repeal of CFPB rule limiting forced arbitration

Experts

Senior Policy Counsel
Media Director

July 24, 2017

House vote to repeal CFPB’s arbitration rule set for Tuesday, July 25 

WASHINGTON, D.C. – Consumers Union, the policy and mobilization arm of Consumer Reports, urged Congress today 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 House is expected to vote on Tuesday on a Congressional Review Act resolution to rescind the CFPB’s rule before it even goes into effect.

In a letter sent to House members, 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 consumers have no choice but to accept this condition in order to get the financial service.

“Forced arbitration is stacked against consumers and shields financial companies from being held accountable for breaking the law and mistreating their customers,” said George Slover, senior policy counsel for Consumers Union.  “The CFPB’s new rule restores the rights of consumers who have been treated unfairly to join with others and seek the relief they deserve in court.  Repealing the arbitration rule would keep this traditional legal pathway blocked, protecting banks and lenders at the expense of consumers.”

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 lender and its lawyers to construct an arbitration process that is unfairly slanted in favor of the lender, leaving consumers no choice other than to accept it as part of a take-it-or-leave-it contract.

Under the CFPB’s rule, forced arbitration cannot be used by financial firms to block consumers who have suffered from widespread abuse 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 wrongdoer to get away with the abuse.  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, when the consumer realizes what’s at stake and can freely decide if the arbitration procedure is fair and workable.

The Wells Fargo scandal is a particularly egregious example of how forced arbitration works against consumers.  Wells Fargo employees opened over two million phony bank and credit card accounts without getting customers’ approval in order to meet sales quotas.  The bank charged those customers bogus fees and used a forced arbitration clause buried in its account contracts to block defrauded customers from bringing legal action.  After the CFPB uncovered the scope of the fraud and fined the company, public outrage over the scandal prompted Wells Fargo to finally relent and settle the claims.

The CFPB’s analysis of forced arbitration found that in 2010 and 2011, a mere 52 consumers took claims under $1,000 to arbitration and only four got any recovery.  In contrast, class actions recovered $2.2 billion in relief — after subtracting out all attorneys’ fees and other court costs — to over 160 million consumers from 2008 to 2012.  In addition, in over 50 cases, class action court judgments directed the companies involved to reform their business practices, helping millions of consumers.

Contact:  Michael McCauley, mmccauley@consumer.org, 415-902-9537 (cell), 415-431-6747, ext. 7606 (office); David Butler, dbutler@consumer.org, 202-462-6262