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CFPB surveying consumers to see what, if anything, they know about arbitration

CFPB surveying consumers to see what, if anything, they know about arbitration

By Paul Bland, Senior Attorney

One of the most important provisions of the landmark Dodd-Frank Act was giving the newly created Consumer Financial Protection Bureau the power to ban or regulate the use of forced arbitration clauses by lenders subject to its jurisdiction. Predictably, this power has the industry freaked out, as banks, payday lenders and so forth really love being able to exempt themselves from any liability under consumer protection laws by imposing get-out-of-jail-free arbitration clauses on consumers.

For example, just a few years ago, it was possible for consumers who’d been cheated by payday lenders to successfully pursue claims under consumer protection laws and recover substantial amounts of money wrongfully taken from them. But in the wake of recent U.S. Supreme Court decisions, courts are throwing out these cases and enforcing arbitration clauses even in cases where it’s been proven that the arbitration clauses guarantee that the consumers will not be able recover anything even if all of their legal claims are correct. Here is a post I wrote this spring about such a case. There are hundreds more cases just like it — forced arbitration clauses are increasingly erasing consumers’ rights to invoke consumer protection laws on their own behalf.

Before the CFPB can take action, though, it needs to study the use of arbitration clauses by lenders to determine if they are being used in a way that harms consumer protection. A few weeks ago, the Bureau took a new step in its study, announcing that it intends to conduct a survey of consumers. Today, Public Justice filed new comments with respect to the proposed survey, where we make three main points.

First, we believe that the survey isn’t really necessary because there is already a wealth of evidence that lenders regularly use forced arbitration clauses to strip their customers of crucial rights under consumer protection laws. We give examples of cases where the Supreme Court has allowed the enforcement of arbitration clauses even where the facts established, in the words of one prominent federal court of appeals, that the arbitration clause offered consumers only an “illusory” remedy. Last June, we had provided a lot of additional evidence on this point in our initial comments to the Bureau, offering a variety of suggestions as to what we thought the bureau did and didn’t need to study.

Second, while we believe it is extremely important that consumers are not aware of the rights they lose under forced arbitration clauses, we nonetheless believe that the survey isn’t necessary because there is already a great deal of evidence establishing that the overwhelming majority of consumers are not aware of and do not understand the forced arbitration clauses that strip them of their rights.

Finally, while we believe that the proposed survey is very likely to develop additional evidence that will help prove that consumers are not aware of the impact of the forced arbitration clauses squirreled away in the fine print of their contracts, we have a few discrete suggestions about how the proposed study could be further improved.

It is great news that the CFPB is being so rigorous and thoughtful in conducting its study, but we think there is enough evidence already out there to justify the Bureau in going ahead and taking the necessary steps to protect consumers.

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