According to the CFPB’s press release:
Many consumer financial products like credit cards and bank accounts have contract gotchas that generally prevent consumers from joining together to sue their bank or financial company for wrongdoing. These widely used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts. With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers. The CFPB’s proposal is designed to protect consumers’ right to pursue justice and relief, and deter companies from violating the law.
Today’s rule proposal follows much research by the CFPB and leading consumer protection groups into the history of mandatory arbitration clauses and the effect that the clauses have had on consumers in the United States. The CFPB summarized its own findings as follows:
Released in March 2015, the CFPB’s study showed that very few consumers ever bring – or think about bringing – individual actions against their financial service providers either in court or in arbitration. The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies. According to the study, class actions succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct. The study showed that at least 160 million class members were eligible for relief over the five-year period studied. Those settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses. In addition, these figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. However, where mandatory arbitration clauses are in place, companies are able to use those clauses to block class actions.
Financial institutions have already started a misinformation campaign suggesting that mandatory forced arbitration is good for consumers. It is important that consumers understand the true facts. More information about the CFPB’s proposed rule can be found on the Bureau’s website: http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-prohibiting-mandatory-arbitration-clauses-deny-groups-consumers-their-day-court/
The text of the proposed rule, plus information on how to comment on the rule is also available on the Bureau’s website:
More information on how the Chamber of Commerce forced arbitration on consumers can be found on the AAJ Website:
https://www.justice.org/news/research (go to report: “Report: How the U.S. Chamber Forced Arbitration on America” - See more at: https://www.justice.org/news/research#sthash.aca6prbB.dpuf)
At Cotchett, Pitre & McCarthy, LLP we have a long history of fighting for the rights of consumers. More about CPM’s Consumer Law Practice can be found here: practices-Consumer-Protection.html