Senate Vote Lets Financial Firms “Lock the Courthouse Doors” & Undermines Consumers’ Ability to Hold Them Accountable for Wrongdoing
October 24, 2017
WASHINGTON, D.C. – The Senate’s vote today to repeal the Consumer Financial Protection Bureau’s new rule limiting forced arbitration undermines the ability of consumers to get relief and hold banks and other financial companies accountable when they engage in widespread misconduct, according to Consumers Union, the policy and mobilization division of Consumer Reports. The House passed a similar Congressional Review Act resolution repealing the CFPB’s rule this summer. President Trump is expected to sign the repeal into law.
“Today’s vote means that big financial companies can lock the courthouse doors and prevent consumers who’ve been mistreated from joining together to seek the relief they deserve under the law,” said George Slover, senior policy counsel for Consumers Union. “The CFPB’s rule was a carefully crafted response to the increasingly prevalent use of forced arbitration clauses, which require consumers to give up their legal rights just to get a loan or some other financial service. Forced arbitration unfairly tips the scales in favor of banks, credit card companies and other financial firms at the expense of consumers who’ve been harmed by widespread corporate wrongdoing.”
Forced arbitration allows a financial company and its lawyers to construct an arbitration process that is unfairly slanted in favor of the company, leaving consumers no choice other than to accept arbitration as part of a take-it-or-leave-it form contract. Arbitration proceedings and their outcomes are generally required to be kept secret. Established law can be disregarded entirely, and there is no right to appeal.
The CFPB’s rule would have prohibited financial firms from requiring consumers who have suffered from widespread harm to resolve disputes through individual arbitration. It would have enabled these consumers to band together in a class action to seek effective relief in court. Contrary to claims made by its detractors, the CFPB’s rule would not have prevented financial firms and their customers from voluntarily agreeing to use arbitration as an alternative for resolving a dispute — as long as they made that agreement after the dispute arose.
The recent Equifax and Wells Fargo scandals have helped illustrate how common forced arbitration clauses have become and how unfair they can be. In September, Equifax announced that the sensitive records of over 143 million Americans had been compromised by hackers who gained access to social security numbers and other information that can be used to commit identity theft. News reports soon revealed that the credit bureau’s terms of service contained a forced arbitration clause that could restrict consumers’ rights if they signed up for credit monitoring and other services. Public outrage pressured Equifax to announce that it would not enforce the arbitration clause in this instance. However, the company is still keeping these arbitration clauses in place in the contracts for its many products and services.
Similarly, Wells Fargo used a forced arbitration clause in its standard contract to block consumers who had phony bank and credit card accounts opened in their names from seeking relief in court. After the CFPB uncovered the scope of the fraud and fined the company, negative publicity over the scandal prompted Wells Fargo to finally relent and settle the claims.
Contact: Michael McCauley, email@example.com, 415-902-9537 (cell), 415-431-6747, ext. 7606 (office); David Butler, firstname.lastname@example.org, 202-462-6262