CFPB Has the Power to Level Playing Field for Consumers

CFPB Has the Power to Level Playing Field for Consumers

CFPB Has the Power to Level Playing Field for Consumers

Mandatory arbitration clauses are buried in the fine print of consumer finance, employment, cell phone, credit card, retirement account, and nursing home contracts. Just by taking a loan, a job or buying a product or service, consumers without warning are forced to give up their right to go to court if they are injured by a company. Because the private system of forced arbitration benefits companies - and disadvantages consumers and employees - more and more industries are flocking to forced arbitration to evade accountability. In arbitration, there is no publicly accountable judge, jury, or right to an appeal. The arbitrators are not made to follow the facts or the law, and there is no public review of decisions to ensure the arbitrator got it right. Moreover, contracts typically name the arbitration firm that must be employed. That arbitration firm is typically one preferred by the company. These arbitrators have an incentive to favor the company, as they want to continue to be given repeat business by them.

Most importantly for corporate America, arbitration is now being used to legitimized broad class action arbitration waivers in all types of consumer agreements, including consumer finance contracts. The practical effect is that companies now use forced arbitration clauses to eliminate the ability of consumers to band together, which is often the only means for consumers to vindicate their rights. "The federal law that governs arbitration has been interpreted to the point where it has warped all sense of fairness or justice, and has given corporations a get-out-of-jail-free card," said Christine Hines, consumer and civil justice counsel at the consumer advocacy group Public Citizen. "The mere existence of a forced arbitration clause and class-action ban in a contract can squash thousands of valid consumer claims and shield companies from being held liable for their misconduct."

As part of the Dodd-Frank Act, Congress required that the Consumer Financial Protection Bureau ("CFPB") conduct a study to analyze the impact of mandatory arbitration clauses in consumer contracts for financial products and services, such as automobile loans, credit cards and checking accounts. The Act explicitly empowers the CFPB to adopt regulations that "prohibit or impose conditions or limitations" on the use of arbitration agreements if it finds doing so to be "in the public interest and for the protection of consumers." Late last year, the CFPB issued its preliminary findings, which were welcomed by consumer advocates. The study revealed the following facts:

  • while tens of millions of consumers are subject to arbitration clauses in the markets the CFPB studied, on average, consumers filed 300 disputes in these markets each year between 2010 and 2012 with the leading arbitration association;
  • 9 out of 10 arbitration clauses prevent consumers from participating in class actions;
  • larger institutions are more likely than community banks or credit unions to include an arbitration clause in consumer contracts for credit cards or checking accounts;
  • consumers do not choose arbitration over class action settlements; and
  • consumers do not file arbitrations for small-dollar disputes

CFPB Director Richard Cordray explained that "[P]reliminary results help us better understand how these clauses are affecting consumers' financial lives so that we can ultimately determine whether action should be taken for their greater protection." These findings foreshadow, but do not guarantee, much-needed regulation prohibiting or limiting mandatory arbitration clauses in consumer finance contracts. Thankfully, the CFPB has already utilized its authority to ban arbitration provisions in the context of mortgage loans. Unfortunately, the CFPB has no power over arbitration clauses in other consumer industries. For the second phase of the CFPB's study, it intends to look at a number of areas, including whether consumers are aware of or have read the terms of arbitration clauses and whether arbitration clauses influence consumers' decisions about which consumer products to purchase.

Bordas and Bordas welcomes action by the CFPB, but is by no means waiting on it. Bordas & Bordas has successfully beaten back numerous arbitration clauses forced on its clients by banks, creditors, cell phone companies, nursing homes and employers, allowing its clients to proceed in a public court. Those of you who have been harmed by corporate America should not assume that these shocking arbitration clauses are valid and are welcome to contact us to discuss your rights.

The results in a legal case depend on a variety of factors, many of which are unique to each case. Prior results by this firm or any other do not guarantee future results. Case results presented here are illustrations of the type of work done by Bordas & Bordas and not a guarantee that any prospective case will yield any particular amount.