Washington, DC – Today the Consumer Financial Protection Bureau (CFPB) proposed a rule banning class action waivers in financial services contracts, which are clauses that force consumers of financial products—including credit cards, bank accounts, and private student loans—to use binding arbitration to settle disputes, effectively barring access to courts. Senator Sheldon Whitehouse, who supported the legislation that created the CFPB, applauded the new rule:
“Class action waivers and forced arbitration are a trick big financial service corporations use to stack the deck against American consumers. They’ve helped the industry route customers with legitimate claims into a business-friendly forum instead of having their claims decided by a jury of their peers. Even worse, class action waivers have prevented many consumers from bringing their claims at all. That’s just plain wrong.”
Class action waivers prohibit customers from joining together to file a class action lawsuit in a court, and instead require customers to bring claims individually in arbitration. These clauses are often included in the fine print of contracts and go unnoticed by consumers. Forced arbitration generally takes place behind closed doors with an arbitrator of the corporation’s choosing. The process typically offers little chance to appeal the arbitrator’s decision.
“I’m glad to see the Bureau use its authority to help consumers stand up to big corporations and empower judges and juries, which is what our Founding Fathers intended,” Whitehouse continued.
According to a report issued this week by the Center for Progressive Reform, forced arbitration clauses are prevalent in a range of consumer financial products and services. The report found forced arbitration clauses in 53 percent of credit card contracts, 86 percent of private student loan contracts, and 92 percent of prepaid credit card contracts.
Congress recognized forced arbitration as a significant threat to Americans’ financial security when it passed the Consumer Financial Protection Act as part of the Dodd-Frank Wall Street reform law in 2010. That legislation created the CFPB and endowed it with the power to ban or limit the use of forced arbitration in the financial services industry.
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