For years, companies have been stripping consumers’ access to justice and right to the courts by installing forced arbitration clauses deep in the fine print of their contracts. By forcing consumers into arbitration and banning them from the courts, companies have set up a rigged system where they are able to evade consumer laws and avoid accountability for their actions. A new proposed rule, however, seeks to limit the power of these arbitration clauses.
The proposed rule – issued by the Consumer Financial Protection Bureau (CFPB), a federal agency tasked with protecting consumers from unfair or abusive business practices – will make it illegal for a company extending credit to a consumer (think banks, credit card companies, payday lenders, car loan finance companies, etc.) to ban class action lawsuits in their arbitration clauses. If the rule is implemented, consumers can no longer be stripped of their right to band together in a class action lawsuit to fight common, company-wide abuses that impact a large number of consumers. The CFPB issued its proposed rule after an extensive, two-year study of arbitration and its impact on consumers.
The CFPB’s proposed rule also requires companies that use arbitration to start reporting the results of arbitration to the CFPB. This is a huge development as companies have fiercely guarded the outcomes of arbitration for years. Unlike the courts, arbitration is not public. Arbitration has essentially been a black box, with the companies extolling its virtues, while at the same time not revealing what is actually happening in arbitration.
Before I became a lawyer I worked for a small newspaper in rural Virginia. My editor used to always say, “Sunlight is the best disinfectant.” Public reporting of arbitration results will finally put the companies’ unbacked claims that arbitration is the ideal dispute-resolving system to the test. The CFPB study has already given us a window into the world of arbitration. The view does not look good if you’re a consumer. Further data and studies will inevitably expose arbitration for what it is, a system designed to shield companies from their bad acts.
There is a 90-day comment period on the proposed rule. If you care about your consumer rights, please let the CFPB know how you feel. You can easily comment at the CFPB’s website.
For more perspective on the proposed rule, check out Paul Bland’s blog at HuffPost. Paul is the Executive Director at Public Justice, a DC-based legal advocacy group, and one of the leading voices in arbitration clauses.