CFPB Proposes Barring Arbitration Clauses that Stop Class Actions
Potential change would open courthouse doors to tens of millions stripped of right to sue
By Aidan O’Shea
On Wednesday, the Consumer Financial Protection Bureau proposed rules designed to prevent consumer financial companies from barring consumers’ ability to file, or join, a class action lawsuit as a condition of using their services.
The federal agency is specifically targeting arbitration clauses that include class action bans, which seek to bar wronged consumers from the civil justice system and deny them their day in court. The use of arbitration clauses with class action bans is widespread among major credit card companies and many lenders. A ban on such clauses would help restore millions of Americans’ access to the courts. Public Justice executive director Paul Bland, a longtime and fervent advocate for consumers and workers harmed by forced arbitration, told The New York Times that the step the CFPB has taken would be “an enormous step toward protecting consumers.”
At a field hearing in Denver, CFPB Director Richard Cordray said that the agency is proposing a ban on forced arbitration clauses that bar class actions in particular because “companies have been able to use this little-known clause to rig the game against their customers” and group claims are often the only way for consumers to band together when wronged.
Cordray added that not acting to protect class actions would “make some companies feel emboldened to violate consumer protection laws.”
The CFPB field hearing featured testimony by consumer advocates and consumer finance industry representatives, and comments from the public, including those who have suffered as a result of being subject to a forced arbitration clause.
Paul Bland praised the CFPB’s proposal, but suggested in a comment that the bureau should go further and “think about whether it’s ok to leave forced arbitration in individual cases” because of the smaller, more “sketchy” businesses that use versions of a forced arbitration clause without a class action ban.
The release of the draft rule begins a comment period during which small business owners will be given an opportunity to review the proposal. Already, opponents are mobilizing and threatening to derail CFPB’s proposal. In an interview with Reuters, the U.S. Chamber of Commerce threatened that “all options are on the table” for stopping the proposed rules from going into effect. The Chamber, whose budget is estimated at $200 million, has aggressively opposed any action designed to give consumers a right to file or join class action suits.