May 21, 2014
The Honorable Shelley Moore Capito
House Financial Services Subcommittee on Financial Institutions and Consumer Credit
2129 Rayburn House Office Building
Washington, DC 20515
Re: Discussion draft of “Bureau Arbitration Fairness Act”
Dear Chairman Capito and Members of the Subcommittee:
The Fair Arbitration Now coalition writes to strongly oppose draft legislation titled “Bureau Arbitration Fairness Act,” offered by Rep. Patrick McHenry that would strip the Consumer Financial Protection Bureau (CFPB) of its ability to prohibit or limit the use of pre-dispute binding mandatory (or forced) arbitration in consumer financial contracts under its jurisdiction.
After the well-documented abuses that led up to the 2008 financial crisis, Congress granted the CFPB the authority to restore consumers’ legal rights in the financial services marketplace in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It would be both illogical and an injustice for consumers if Congress suddenly confiscated this crucial authority from the CFPB.
Forced arbitration describes terms hidden in the fine print of financial services contracts that strip consumers of their right to file claims in court. These arbitration clauses, which increasingly also restrict consumers’ participation in class actions, result in the funneling of all claims into a secret and biased system controlled by the big banks and lenders. Forced arbitration is presented in take-it-or-leave-it contracts, and individuals have little or no choice unless they forego the products altogether – not realistic when it comes to signing up for student loans, credit cards, and other financial products.
The financial industry uses forced arbitration to avoid accountability. And lenders use these hidden clauses to protect themselves from claims, such as illegal charges and fees on checking or credit card statements, short-term loans with exploding interest rates that violate state and federal consumer protection laws, and other unfair and deceptive lending practices.
Rep. McHenry’s legislation is particularly troubling because it is being proposed even after the December 2013 release of the CFPB’s preliminary data from an ongoing study on forced arbitration. The CFPB’s initial findings demonstrate consumers’ preference to have their day in court when they are harmed by financial institutions. The CFPB’s data adds to the mountain of evidence proving that forced arbitration not only takes away individuals’ legal rights, it also removes a crucial tool, the civil courts, to deter corporations from engaging in illegal and harmful conduct. After it completes the study and releases a final report on forced arbitration, the CPFB should then act in the public’s interest and restore consumers’ ability to choose how to resolve disputes.
Therefore, we strongly urge you to reject Rep. McHenry’s discussion draft–the “Bureau Arbitration Fairness Act.” If you have any questions or concerns, please feel free to contact Christine Hines, Public Citizen, (202) 454-5135, firstname.lastname@example.org; Ellen Taverna, National Association of Consumer Advocates, (202) 452-1989, email@example.com; or Julia Duncan, American Association for Justice, (202) 944-2819, Julia.Duncan@justice.org.
The Fair Arbitration Now Coalition
(To view a list of organizations and individuals that support ending the predatory practice of forced arbitration in consumer and non-bargaining employment contracts, please visit: https://fairarbitrationnow.org/content/coalition).