Christine Hines

RELEASE: Consumers to CFPB: End Forced Arbitration 

Consumer Financial Protection Bureau Can End Wall Street’s Practice of Stripping Customers’ Right to Go to Court

Washington DC – More than 78,000 consumers are calling on the Consumer Financial Protection Bureau (CFPB) to take swift action to ban forced arbitration clauses in terms attached to financial services and products in a petition delivered to the Bureau today. The CFPB is empowered by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to ban or limit this anti-consumer device in products under its jurisdiction.

Forced arbitration clauses, tucked in the non-negotiable terms of consumer financial products, prevent consumers who have been harmed or ripped off from holding their bank, credit card, or other unscrupulous lenders accountable in court. Instead, financial institutions force them to plead their case to a private arbitration provider that is named by the banks before a dispute arises. The result is that consumers cannot practically or fairly resolve disputes with powerful institutions or seek remedies for harm caused by their wrongful conduct.

In March, the CFPB released a 728-page data-based report detailing results of its comprehensive study of financial institutions’ use of forced arbitration. This report shows that forced arbitration clauses hinder cheated consumers from obtaining any relief when corporations break state and federal consumer protection laws.

“These petitions send a loud and clear message: It’s time to end the insidious practice of forced arbitration,” said Nan Aron, President, Alliance for Justice. “The CFPB has the power to give consumers a fair shot at justice against banks and other large financial institutions that often stack the deck against them. It should do so without delay.”

“Forced arbitration functions as a license to steal, making it impossible for customers to hold banks and lenders accountable when they break the law,” said Lisa Donner, Executive Director of Americans for Financial Reform. “With 78,000 signatures and counting, these petitions demonstrate that consumers can spot a rigged game. They’re counting on the CFPB to take action.”

“Financial institutions pull the rug from under consumers already cheated by predatory lending by also denying them proper legal redress,” said Christine Hines, consumer and civil justice counsel from Public Citizen’s Congress Watch division. “The CFPB has all the evidence it needs to remove forced arbitration from the fine print of financial products and services.”

“Consumers across the country are outraged that corporations and Wall Street banks have granted themselves a license to steal and evade the law using forced arbitration and are looking to the CFPB to stop it,” said Ellen Taverna, Legislative Director, National Association of Consumer Advocates. “The CFPB must act quickly to prohibit abusive forced arbitration clauses in all consumer financial products under its jurisdiction and restore consumers’ rights to protect themselves.”

“These petitions highlight that this problem isn’t just an abstract legal issue–forced arbitration harms individual consumers by preventing them from protecting themselves against corporations from large banks to smaller payday lenders and credit repair companies,” David H. Seligman, Staff Attorney, National Consumer Law Center, said.

“For far too long, forced arbitration has stacked the deck against consumers who have been cheated or harassed by Wall Street,” said Lisa Blue, President, American Association for Justice. “This petition should send a clear message that the American people demand to have their rights restored to hold even the most powerful financial institutions accountable when they break the law.”

Petition: We, the undersigned, call on the Consumer Financial Protection Bureau to prohibit forced arbitration in the terms of service of all consumer financial products and services under its jurisdiction. Stand up for consumers and restore our right to hold banks accountable when they break the law.

Fair Arbitration Now, a network of more than 70 consumer, labor, legal and community organizations sent a letter to the House Appropriations Committee strongly opposing an amendment offered by U.S. Representatives Steve Womack (R-Ark.) and Tom Graves (R-Ga.) to the Financial Services and General Government appropriations bill. The amendment proposes a tragic waste of taxpayer resources by repeating a three-year federal government study already completed by the Consumer Financial Protection Bureau (CFPB). READ THE LETTER. 

The Consumer Financial Protection Bureau continues to hear from public officials, public interest organizations and individual consumers on how important it is that it exercise its authority to write a rule to eliminate forced arbitration and restore consumers’ legal rights in the financial marketplace.

* As reported here, U.S. senators and representatives sent a letter today to the CFPB, urging it to “move forward quickly” on rulemaking.

* In November 2014, 16 state attorneys general submitted a letter to the Bureau requesting a rule to reinstate consumers’ access to the court system.

* Advocates of fair lending in housing who have observed how the removal of forced arbitration in residential mortgage terms has benefited homeowners, also requested that the Bureau apply the same policy to all lending products and related services.

* As we mentioned before, the Bureau received a letter from 107 national, state and local organizations urging it  to protect consumers from the predatory practice.

* Consumers across the country, including from Fort Myers, FL, St. Louis, MO and Omaha, NE have submitted letters to their local publications protesting the unfair practice of forced arbitration, particularly in financial services.

Today, more than 50 U.S. senators and representatives sent a letter to the Consumer Financial Protection Bureau (CFPB), urging the agency to write a rule to protect consumers from the horrors of the fine print that takes away consumers’ right to seek remedies against big banks and other financial services companies in court. The letter led by U.S. Sen. Al Franken (D-Minn.) and U.S. Rep. Hank Johnson (D-Ga.) noted the evidence set forth in the “comprehensive” CFPB study, which was released in March 2015.

According to the lawmakers’ missive to CFPB Director Richard Cordray, “the study conducted by CFPB at Congress’s request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial services.  Moreover, forced arbitration shields corporations from liability for abusive, anti-consumer practices, encouraging even more unscrupulous business conduct at the expense of individuals and law abiding businesses through a cycle of corporate malfeasance. Based on this substantial bedrock of evidence, we urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise.” Read the letter. 

Last month, lawmakers in the Senate and House introduced two bills, the Arbitration Fairness Act of 2015 (S. 1133 and H.R. 2087) and the Court Legal Access and Student Support (CLASS) Act of 2015 (S. 1122 and H.R. 2079). The Arbitration Fairness Act, sponsored by Franken and Johnson, would make arbitration clauses in contracts unenforceable for consumer, civil rights, employment and  antitrust disputes. The CLASS Act, sponsored by Sen. Dick Durbin (D-Ill.) and Rep. Maxine Waters (D-Calif.) would make arbitration clauses unenforceable in college enrollment contracts. Read this story on the CLASS Act.

Pew Charitable Trusts recently released its  fifth in a series of reports reviewing checking account terms and conditions. It criticized overdraft practices that result in excessive fees and the use of forced arbitration in the fine print of customer agreements. Pew defined three best practices for financial institutions that provide checking accounts:

  • Provide checking accountholders with clear and concise disclosure about fees and terms.
  • Reduce the incidence of overdrafts and eliminate practices that maximize overdraft fees.
  • Allow consumers to choose the method by which they resolve a problem with their bank, rather than requiring pre-dispute binding arbitration.”

In its report, Pew issues recommendations to the Consumer Financial Protection Bureau including a rule to “Prohibit, in checking account agreements, pre-dispute mandatory binding arbitration clauses, which keep accountholders from accessing courts to challenge unfair and deceptive practices or other legal violations.” Read the report.

In a  letter released today, 100+ organizations, reacting to the Consumer Financial Protection Bureau’s (CFPB) recently released study on arbitration, urged the agency to “prohibit forced arbitration clauses in contracts for consumer financial services and products under its jurisdiction.” 

“Few practices are as abusive, unfair, and deceptive as the widespread use of forced arbitration clauses in most consumer contracts, including credit cards, student loans, debt settlement, credit repair, auto financing, and payday loans,” the national, state and local groups said in the letter. “The CFPB study verified the prevalence of forced arbitration clauses and class action bans in consumer finance contracts and found that the clauses impacted tens of millions of consumers. According to CFPB data, forced arbitration eradicates consumer claims. As the financial industry knows, most consumers cannot and do not use the arbitration forum on an individualized basis.”

The letter concluded, “We believe that the final results of the CFPB arbitration study offer concrete evidence that the use of forced arbitration clauses is harmful to consumers, and therefore, it is in the public interest and in the interest of consumer protection to prohibit the practice.”

Get the real stori-fy on the Consumer Financial Protection Bureau’s March 10 field hearing on arbitration. The bureau released its comprehensive study at the event, and the Twitter comments were marvelous. 

Lawmakers speak out about the Consumer Financial Protection Bureau’s study on the use of arbitration in consumer financial products and services. 

U.S. Senator Sherrod Brown (Ohio): “Only when consumers are faced with a serious financial dispute do they realize that they are prohibited from filing individual and class action lawsuits, often depriving them of a fair settlement. The Consumer Financial Protection Bureau must protect consumer interests and implement a strong rule banning mandatory arbitration.” Read more. 

U.S. Senator Al Franken (Minnesota): “Forced arbitration can put consumers at a huge disadvantage, often limiting their ability to have any meaningful legal recourse when they are wronged. This new report from the CFPB calls attention to just how much harm these type of agreements can do to consumers, and I look forward to seeing a strong rule issued by the Bureau in response.” Read more. 

U.S. Representative Hank Johnson (Georgia):  “Furthermore, this study underscores the importance of creating arbitration fairness in all consumer agreements.  I strongly believe that the comprehensive solution to this problem is the Arbitration Fairness Act, which would eliminate forced arbitration clauses in employment, consumer, civil rights, and antitrust cases, and would allow consumers and workers to freely choose arbitration after a dispute occurs. This simple fix would allow a voluntary system of arbitration.” Read more. 

On Tuesday, March 10, the Consumer Financial Protection Bureau (CFPB)  released its final report on the use of arbitration in financial services and products.  The results were devastating. The message is clear. The CFPB has the evidence it needs to write a rule to restore consumers’ choice to go to court to resolve disputes. Here are some reactions to the study:

Center for Responsible Lending: Today’s report makes what we’ve known crystal clear: forced arbitration clauses limit consumer relief and have no place in a fair marketplace. While companies claim that arbitration is simpler, easier, and cheaper than taking a case to court, they fail to mention that the forced arbitration rarely provides the same kind of discovery, impartiality, or meaningful review that can be achieved in courts of law. Read more.

Because Finance Is Boring: One of the main issues with forced arbitration is that it can be used to deny customers the ability to band together in a class action case. This denies consumers the ability to get justice, as it forces them to fight their case alone. Rather than spend the money to go to arbitration, most consumers simply give up. Read more.

Consumer Federation of America: In its Arbitration Study released today, the Consumer Financial Protection Bureau (CFPB) found that across substantially all consumer finance markets, pre-dispute forced arbitration clauses are extremely prevalent and detrimental to consumers’ ability to seek legal relief when they are wronged. Moreover, the vast majority of consumers are not aware that these clauses exist and do not fully understand how these clauses can be used to deny their access to court. Read more.

Public Justice:  The CFPB has found overwhelming empirical evidence to suggest that forced arbitration keeps consumers from being able to protect themselves. Read more. 

Americans for Financial Reform: In its latest study of forced arbitration, the Consumer Financial Protection Bureau (CFPB) confirms what consumers and consumer advocates have long said about this practice: it is a private dispute system stacked against individuals seeking justice. AFR applauds the release of the CFPB’s report, and urges the Bureau to move forward swiftly with rulemaking to prohibit forced arbitration in consumer financial contracts. Read more. 

Public Citizen: The CFPB arbitration study released today shines a light on harsh realities for consumers in the financial marketplace, and these realities call for an immediate fix. The data show that pre-dispute forced arbitration clauses not only restrict the rights of consumers of traditional products – such as credit card and checking accounts – they also affect non-bank products in the financial sector such as payday loans. Read more.

Consumers Union: Basic legal protections have no meaning if companies can’t be held accountable under the law.  The CFPB report clearly demonstrates why forced arbitration clauses are unfair to consumers and undermine the rule of law. Read more.

National Association of Consumer Advocates:  Because over 90 percent of these clauses require consumers to pursue their claims on their own, many consumers never have an opportunity to have their claims heard. Forced arbitration isn’t an alternative forum for resolving disputes; it’s a get-out-of-jail free card for corporations. Read more.

American Association for Justice:  For too long, Wall Street has been able to cheat, steal from, and harass American consumers without ever being held accountable by the very people who keep them in business – and completely evade crucial consumer protection laws that are designed to ensure even the most powerful financial institutions follow the rules. Read more.

Alliance for Justice: Under the Dodd-Frank Act, CFPB was instructed to study forced arbitration.  That law also gives CFPB the authority to prohibit forced arbitration clauses in consumer financial products if it finds that such a prohibition would be in the public interest.  The report adds to the overwhelming body of evidence that such a prohibition is not just in the public interest, but is vital to ensure companies will be held accountable when they harm everyday Americans. Read more.

National Consumer Law Center: The study also confirms that consumers have absolutely no idea they are giving up constitutional rights and surrendering their day in court. In fact, fewer than seven percent of the consumers surveyed by the CFPB that are covered by arbitration clauses realized that the clauses restricted their ability to sue in court. Read more.

Public Investors Arbitration Bar Association: We continue to support the idea of giving consumers greater flexibility to pursue their claims in either court or arbitration after a dispute arises. The CFPB report provides new and welcome support for our position in this matter. We believe that it is high time for the SEC to face the facts that wronged American investors should have a choice as to how they resolve their complaints. Read more. 

Center for Justice and Democracy (Thepoptort.com): Today, the federal Consumer Financial Protection Board released an extraordinary study – over 700 pages long – finding that these clauses indeed keep lawsuits from being filed, forcing consumers with disputes with banks, credit card companies, payday lenders and so on, into private, rigged corporate system. Read more.

National Employment Lawyers Association and The Employee Rights Advocacy Institute For Law & Policy: The evidence and data compiled in the CFPB study indicating that forced arbitration clauses and class action waivers are harmful to consumers also holds true for America’s workers. Read more.