The Consumer Financial Protection Bureau (CFPB) will hold a field hearing today to discuss arbitration. The proposed regulation does not eliminate binding arbitration entirely, the statement said – and it notably does not affect businesses outside the financial sector that the CFPB does not regulate, such as wireless carriers and cable companies.
Advertisement
But mandatory-arbitration clauses “block consumers from ever securing any meaningful relief from violations of the law”, Cordray said. In a fact sheet, the Consumer Bankers Association said that according to bureau research, a consumer recovers on average $5,389 when using arbitration.
“You know you were screwed, but you don’t know how they did it”, Saunders said of aggrieved consumers fighting financial companies.
“Forced arbitration and class action bans force consumers into a biased, secretive, and lawless forum, preventing either a court or an arbitrator from ordering a lawbreaker to repay all of its victims”.
Travis Norton, executive director of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, called the proposed rules “a backdoor ban” on arbitration clauses, which he said can provide individual consumers the chance for more financial relief than a class-action suit. Since it requires no congressional approval, the rule quite likely will go into effect after a 90-day public comment period in which opposition from business groups will no doubt be extensive, loud and bullshitty. They say arbitration is more efficient and helps avoid costly litigation, which they said rarely benefits the people filing suit.
The New York Times puts it like this: the agency proposes to “unravel a set of audacious legal maneuvers by corporate America that has prevented customers from using the court system to challenge potentially deceitful banking practices”. Financial companies will still be able to force individuals to settle disputes through arbitration; however cases where a lone customer wants to sue his or her bank are far less common. The proposal, Hensarling added, “is just another example of the CFPB abusing power that it never should have had in the first place”. “You may file a class action in court or you may be a member of a class action even if you do not file it”. It basically says that if you agree to use the service, you also agree to resolve any disputes you have with the company through an arbitrator. It was initiated by the Dodd-Frank financial reform bill, which instructed the Consumer Financial Protection Bureau to study the issue and make rules after the study as needed.
“Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them”, said CFPB Director Richard Cordray. They would also have to give the bureau information on claims filed and awards issued in the arbitrations, as well as correspondence from arbitrators regarding unpaid fees and failure to follow standards of conduct. The protections would apply to new accounts opened after the rules go into effect, not existing accounts.
“That is so even though class actions are widely recognized to be valid avenues to secure legal relief under federal and state law”.
Critics of the CFPB’s ban say the proposal will only benefit class-action lawyers and lead to enormous paydays.
Advertisement
In November, as a draft of the CFPB’s rule circulated, the American Action Network’s president, Mike Shields, told The New York Times that the bureau’s position on arbitration “is a flawless example of how government is taking away the power of individuals and handing it to the trial lawyers”.
