Forced Arbitration Clauses Must Go, Consumer Groups Tell Feds

Over 100 consumer, civil rights, and labor groups are demanding action on the issue of forced arbitration clauses — the sneaky language commonly buried in financial service contracts to block customers from suing when they are cheated or defrauded by big banks.

During the Trump administration, Congress blocked a rule issued by the Consumer Financial Protection Bureau (CFPB) to block such shady practices. Former Vice President Mike Pence broke a 50-50 tie vote in the Senate to kill the rule.

But the consumer groups say the CFPB still has the statutory authority to go after banks that cheat customers and has called on CFPB Director Rohit Chopra to do just that.

“Forced arbitration is a rigged game, one that banks and other financial industry players nearly always win,” said Robert Weissman, president of the consumer advocacy organization Public Citizen. “It is far past time for the CFPB to level the playing field and ensure that harmed consumers regain access to the courts when wronged by the financial industry.”

A leading threat

Congress recognized forced arbitration as a leading threat to the enforcement of consumer protection laws and explicitly empowered the CFPB to limit its use in the 2010 Dodd-Frank legislation. Before issuing a rule, the CFPB studied the financial sector’s use of forced arbitration against consumers and the 728-page report released in March 2015 confirmed what consumer advocates have long known – forced arbitration denies justice to customers and allows big banks to escape accountability when they break the law.

“We were exceedingly disappointed that Congress voted by the narrowest of margins to disapprove the rule before it could go into effect. However, the Bureau’s statutory authority to address this widespread problem on behalf of consumers and the public interest remains and the abusive use of forced arbitration by the banking industry has only grown worse in the intervening years. The Bureau can and must exercise its authority in any number of ways that would not be substantially the same as the regulation Congress acted to nullify,” the consumer groups said in their letter.

The groups signing the letter urge Director Chopra to engage in a public conversation on how the secret, accountability-killing practice of forced arbitration leads to greater fraud in the financial sector that affects every day Americans’ lives.

“The CFPB should act now to remove the chokehold of forced arbitration and class action bans which stands in the way of consumers seeking remedies from the well-known traps of junk fees, sky-high interest rates, inaccurate credit reporting, fake accounts, and other predatory practices in financial products and services,” said Christine Hines, legislative director for the National Association of Consumer Advocates.