“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” said CFPB Director Richard Cordray. “Companies are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing. The proposals under consideration would ban arbitration clauses that block group lawsuits so that consumers can take companies to court to seek the relief they deserve.”
In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required the CFPB to study the use of arbitration clauses in consumer financial markets and gave the Bureau the power to issue regulations that are in the public interest, for the protection of consumers, and consistent with the study’s findings. The CFPB’s study showed that arbitration clauses restrict consumers’ relief for disputes with financial service providers by allowing companies to block group lawsuits.
The Dodd-Frank Act specifically prohibits the use of arbitration clauses in mortgage contracts.
Buried in many contracts for consumer financial products like credit cards and bank accounts, most arbitration clauses deny consumers the right to participate in group lawsuits against companies.
With this free pass, companies can sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers, according to Cordray.
The CFPB’s proposals under consideration would give consumers their day in court and deter companies from wrongdoing.
The CFPB announced it is considering proposing rules that would ban consumer financial companies from using “free pass” arbitration clauses to block consumers from suing in groups to obtain relief.