SAINT PAUL, Minn. — More than 50 members of Congress, led by U.S. Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga.), signed a letter asking the Consumer Financial Protection Bureau (CFPB) to issue new rules that would eliminate the use of forced arbitration clauses in consumer financial service contracts.
The letter, submitted to CFPB Director Richard Cordray on May 21, commends the bureau for its study of arbitration clauses, but asks the CFPB to take its work in that arena one step further. A similar appeal by more than 100 groups was made to the regulator in late March.
“In total, 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,” the letter read, in part. “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.
“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.”
On March 10, the CFPB released the results of its study of pre-dispute arbitration clauses in consumer finance markets. It indicated that more than 75% of consumers don’t know whether they are subject to an arbitration clause in their agreements with their financial service providers. The report also concluded that it is common for arbitration clauses to be invoked to block class action lawsuits.
At a field hearing coinciding with the report’s release, Cordray told stakeholders that the results of the study would “provide the basis for important policy decisions that the Consumer Bureau will have to make in this area.”
But not everyone is taking these findings at face value. In an April article, F&I and Showroom legal columnist and Hudson Cook LLP Partner Tom Hudson criticized the CFPB’s report for its “gaping holes” — such as failing to address the growing consumer-friendless of arbitration clauses.
“In fact, it isn’t unusual to see clauses that provide for the payment by the creditor of some or all of the costs of arbitration,” Hudson wrote. “Creditors also frequently call attention to the presence of an arbitration agreement by using large type, separately boxing the clause or having it separately signed or initialed. The study offers no insight on whether these best practices might change any of its conclusions.
“There’s much to dislike about the CFPB’s work on arbitration,” Hudson added. “You’d think arbitration must have some things to recommend it, since Congress passed the Federal Arbitration Act and nearly all states have enacted laws permitting arbitration. But the bureau seems determined not to see any good in the process.”