Today, the Consumer Financial Protection Bureau’s proposed rule to limit forced arbitration was published in the Federal Register. Although the Bureau first released its proposal two weeks ago, the 90-day countdown for the public to submit feedback starts today and closes August 22. The first officially posted comment — a letter by 210 law professors and scholars from across the country! — is the most excellent way to kick off the rulemaking’s comment period.
After years of extensive study on how banks, lenders, and other financial institutions take away our right to sue and block us from participating in class actions, the agency has decided it’s time to take action. Following the statutory playbook — that’s Section 1028 of the Dodd-Frank Wall Street Reform and Consumer Protection Act — the Bureau’s proposed rule would curb the use of forced arbitration clauses in the fine print of consumer finance contracts.
Specifically, it would eliminate the most unscrupulous feature of forced arbitration — class action bans. We will once again be able to join together to hold financial companies accountable for predatory fees, illegal charges, exorbitant interest rates—essentially those practices that cheat and deceive so many of us. For the few remaining consumer finance-related arbitrations that take place on an individual basis, the Bureau has proposed to collect data from financial institutions, hopefully to prepare for future action to ban forced arbitration outright.
The law professors’ comment letter, submitted by Prof. Jean Sternlight of William S. Boyd School of Law at the University of Nevada Las Vegas, strongly endorses the agency’s proposal. It’s a good read. It stresses the importance of consumers banding together in class actions, describes how difficult it is for consumers to pursue individual arbitrations, and explains the critical role of private enforcement in the U.S. legal system. Data enthusiasts, as academics typically are, they also “heartily endorse” the Bureau’s proposal to collect data on individual arbitration filings.
But perhaps the most incisive and clear point from the letter is this one: “to the extent we allow financial services companies to use arbitration to eradicate consumer class actions, we are allowing these companies to insulate themselves from enforcement of our laws. This harms not only individual consumers but also the public at large.”