The Consumer Financial Protection Bureau is considering whether to ban mandatory arbitration clauses. To that end, the bureau has outlined proposals that would not ban arbitration clauses in their entirety, but would ban clauses that block class action lawsuits in consumer contracts. The proposed ban would apply to most consumer financial products, including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, auto title loans, small dollar or payday loans, private student loans, and installment loans.
Speaking at an Arbitration Field Hearing in Denver, CFPB Director Richard Cordray said, “Companies use this clause, in particular, to block class action lawsuits. They thus provide themselves with a free pass from being held accountable by their customers. 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 March, the bureau released the results of its arbitration study, in which it concluded that arbitration clauses restrict consumers’ relief for disputes with financial service providers by limiting class actions. The bureau found that very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements.
In his remarks, Cordray noted that violations of consumer protection laws may result in relatively little harm per individual victim, and as a result, class actions “often are the only effective way consumers can pursue meaningful relief for harms that can add up to large amounts of money for financial providers.”
In a post to its blog, the bureau noted that class action lawsuits allow consumers to “band together” to seek relief for harms that are too small to be practical to sue over as an individual. According to the CFPB’s study, from 2008 to 2012, approximately 6.8 million consumers received $220 million in payments from class action settlements per year.
However, the bureau’s study also found that most arbitration agreements can be used to move class lawsuits from court to arbitration, where class proceedings are typically prohibited under the arbitration agreement. Companies often successfully use arbitration agreements in consumer financial class litigation cases filed in court to block access to any form of class proceeding for those claims.
Speaking at an Arbitration Field Hearing in Denver, CFPB Director Richard Cordray said, “Companies use this clause, in particular, to block class action lawsuits. They thus provide themselves with a free pass from being held accountable by their customers. 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 March, the bureau released the results of its arbitration study, in which it concluded that arbitration clauses restrict consumers’ relief for disputes with financial service providers by limiting class actions. The bureau found that very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements.
In his remarks, Cordray noted that violations of consumer protection laws may result in relatively little harm per individual victim, and as a result, class actions “often are the only effective way consumers can pursue meaningful relief for harms that can add up to large amounts of money for financial providers.”
In a post to its blog, the bureau noted that class action lawsuits allow consumers to “band together” to seek relief for harms that are too small to be practical to sue over as an individual. According to the CFPB’s study, from 2008 to 2012, approximately 6.8 million consumers received $220 million in payments from class action settlements per year.
However, the bureau’s study also found that most arbitration agreements can be used to move class lawsuits from court to arbitration, where class proceedings are typically prohibited under the arbitration agreement. Companies often successfully use arbitration agreements in consumer financial class litigation cases filed in court to block access to any form of class proceeding for those claims.
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