A federal agency is proposing to restore consumers’ right to join together to hold corporations accountable when they break the law.
The U.S. Consumer Financial Protection Bureau’s proposed rule, released Thursday, would prohibit mandatory arbitration clauses that deny groups of consumers their day in court.
Class-action bans are used by corporations to prevent consumers who have suffered similar harms from joining together to take on a corporation as a group.
“Over the past decade, large corporations have converted the fine print in standard form and consumer contracts into a way to escape liability for wrongdoing,” said Robert Weissman, president of Public Citizen, a consumer advocacy group. “Companies have discovered these rip-off clauses let them commit egregious wrongs and escape any accountability. The CFPB’s proposed rule will end the worst elements of forced arbitration by restoring consumers’ right to once again band together over shared wrongs.”
However, the bureau’s proposal doesn’t end forced arbitration entirely in consumer financial contracts. It isn’t addressing at this time the requirement that consumers individually must settle disputes in arbitration
Public Citizen applauds the bureau’s proposal, but also urges it to consider going further to restore consumers’ right by banning arbitration clauses for individuals as well.
Public Citizen said that during the months while the rule is being finalized, Wall Street and other major corporate interests likely will lobby behind the scenes to weaken the rule. One of the main players is expected to be the U.S. Chamber of Commerce, which has been opposing the bureau’s attempts to protect consumers’ right to go to court when harmed by a company.
The bureau conducted that study on forced arbitration that found few consumers challenge corporate fraud or abuse individually. However, 34 million customers recovered $2.7 billion through class actions over a five-year period, more than $500 million per year.
Other agencies also are beginning to limit forced arbitration where it harms the public interest within their rulemaking jurisdiction, Public Citizen said.
The U.S. Department of Education released a proposal to address the increasing use of forced arbitration clauses by the for-profit college industry. The Centers for Medicare and Medicaid Services is considering a limit on arbitration clauses in nursing home contracts.
Previously, Congress has banned forced arbitration in transactions with: military service members on payday loans, vehicle title loans, and tax refund anticipation loans; auto dealers and automobile and truck manufacturers; livestock and poultry growers; and employees of government defense contractors with Title VII and sexual assault tort claims.
