Six Takeaways from U.S. Senate, House Letters Endorsing CFPB’s Proposed Arbitration Rule

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Two letters submitted today by 103 members of the U.S. House of Representatives and the U.S. Senate support the Consumer Financial Protection Bureau’s proposed rule to curb forced arbitration clauses in consumer financial contracts. The rule would bar terms that block consumers’ right to band together in court when they are ripped off or cheated by lenders and other financial firms.

The rule has been four years in the making and will come not a day too soon when it is finalized. In 2012, the bureau launched a wide-ranging study on the use of terms in corporate-written consumer financial contracts that bar consumers from going to court and direct them to resolve disputes with powerful corporations in private arbitration proceedings on an individual basis. The bureau completed its study in March 2015 and published the proposed rule this May.

Congress laid the groundwork for the CFPB’s action when, in 2010, it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, creating the bureau and granting it specific authority to examine forced arbitration and issue a rule restricting the practice. In these letters, 38 senators ,  led by Senators Harry Reid, Al Franken, Patrick Leahy and Sherrod Brown; and 65 U.S. representatives ,  led by Reps. Maxine Waters, John Conyers, and Hank Johnson, send a supportive message to the bureau and urge it to quickly finalize the rule. Here are six takeaways from their letters that tell the story of why the public needs this rule:

1. Forced arbitration is unfair and everywhere in financial services.

Senate: “Everyday, American across the country are forced to sign away their constitutional right to access the courts as a condition of purchasing common products and services like credit cards, checking accounts, and private student loans.”

2. The bureau’s data adds to already existing proof that consumers need change.

House: “There is overwhelming evidence that class-action waivers in financial products and services agreements undermine the public interest.”

3. Without class actions, there is little accountability for corporate wrongdoing.

Senate: “Because the majority of individual claims against consumer financial services companies are worth only small amounts of money, as Judge Richard Posner of the Seventh Circuit Court of Appeals once put it, 'the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.'”

4. Congress has long been concerned about forced arbitration.

House: “Congress has already acted to ban forced arbitration clauses in residential mortgages and in financial products offered to service members and veterans. We have entrusted the Bureau with authority to extend these protections to the rest of the financial services marketplace.”

5. Eliminating forced arbitration outright would have been great, but the bureau does the next best thing.

Senate“[W]hile the proposal does not prohibit companies from forcing consumers to arbitrate individual cases, we strongly support the CFPB’s efforts to require companies to report certain information about individual arbitrations and the CFPB’s proposal to provide access to that information online.”

6. The rulemaking is supported by unassailable data.

House: “We strongly believe that your comprehensive study on forced arbitration unequivocally demonstrates that the proposed rule is necessary to the public interest and consumer welfare.”