In March, we covered the federal Consumer Financial Protection Bureau’s “extraordinary study – over 700 pages long – finding that [forced arbitration] clauses … plus class action waivers result in the disappearance of claims and immunity for the wrongdoer.” (See more here.) As Reuter’s Alison Frankel put it in her story called, "CFPB arbitration study a powerful vindication of consumer class actions."
The study’s findings are unequivocal: Class actions deliver cash relief to vastly more consumers – especially those with small dollar claims – than individual arbitration. The CFPB hasn’t yet proposed a rule to restrict financial services companies from requiring consumers to arbitrate their cases, but that’s almost sure to come. Whatever limitations the CFPB proposes will be hotly contested by banks and other businesses before a final rule goes into effect.
“Hotly contested” hardly describes what happened next. Bullying corporate lobbyists went crying to mommy – i.e., Congress – to try to shut down the CFPB. Efforts were underway to defund the agency and completely change its structure so it couldn’t effectively function.
But this wasn’t enough. They demanded that Congress intervene and force the agency to “reopen” this arbitration study, delaying any sort of rulemaking, alleging that this massive, painstakingly-researched empirical study wasn't comprehensive enough.
Take note, kids. This is how you deal with schoolyard bullies: You keep your head up, stay strong and carry on. And that’s just what CFPB did yesterday, ignoring those who would defy hard data and releasing a proposal to prohibit companies from banning class action lawsuits, or in their exact words, “ban companies from using arbitration clauses as a free pass to avoid accountability.”
The agency explained on its website:
Remember the last time you signed up for a credit card or student loan? You could be one of the millions of consumers who have signed away the right to join together with other consumers in a group lawsuit to get compensation from a company when it breaks the law and harms you. Buried in many contracts for consumer financial products are arbitration clauses that block consumers from seeking relief through class action lawsuits.…
The presence of such a clause means that if you want to claim financial relief from a company that has wronged you, you must proceed individually. That’s true, no matter how small your claim and no matter how many customers may have been harmed by exactly the same wrongdoing. And even if you win your claim and receive compensation for your wrong, the company may continue the illegal and harmful behavior toward other consumers. Our March study found that very few consumers individually seek relief through arbitration or the courts.…
Today, we are issuing proposals under consideration addressing arbitration clauses in consumer financial contracts. These proposals would make it illegal for contracts for many types of consumer financial products to have an arbitration clause that deprives consumers of the opportunity to participate in a class action lawsuit. These proposals would apply to products and services including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, auto title loans, small dollar or payday loans, private student loans and installment loans.
Lifting this barrier to group lawsuits will empower consumers to hold companies accountable and seek relief for harms suffered. Moreover, we believe it will encourage companies to comply with the law. Read more about our study on arbitration agreements in our March 2015 report to Congress.
This remarkable agency is going to need everyone’s assistance to help them fight back against the continuing assault by corporate bullies who will try to undermine its work - indeed the CFPB’s very existence. Let the CFPB - and your member of Congress - know how much you appreciate what they’ve done, and hopefully will continue to do. In fact, tell them that they now must go further and ban forced arbitration clauses altogether.