The Right Move: Agency Aims to Ensure Consumers Can Band Together to Hold Corporations Accountable for Breaking the Law

The U.S. Consumer Financial Protection Bureau's (CFPB) proposal (PDF) to restore consumers' right to join together to hold corporations accountable when they break the law is commendable, Public Citizen said today.

The CFPB's proposed rule, released today at a forum in Albuquerque, New Mexico, would limit the financial industry's use of forced arbitration in contracts that also prevent consumers from filing class-action lawsuits. Forced arbitration is an abusive practice in which corporations bury "rip-off clauses" in the fine print of take-it-or-leave-it contracts to block consumers from challenging predatory practices such as hidden fees, fraud and other illegal behavior.

"Over the past decade, large corporations have converted the fine print in standard form and consumer contracts into a way to escape liability for wrongdoing," said Robert Weissman, president of Public Citizen. "Companies have discovered these rip-off clauses let them commit egregious wrongs and escape any accountability. The CFPB's proposed rule will end the worst elements of forced arbitration by restoring consumers' right to once again band together over shared wrongs."

"Although the CFPB's proposal does not end forced arbitration altogether in consumer financial contracts, the rule represents a big step and a crucial consumer protection," Public Citizen's Congress Watch Director Lisa Gilbert said.

"In a desperate attempt to protect the rip-off clauses that give big banks and other financial companies an effective license to steal, the U.S. Chamber of Commerce and the financial industry are going to do everything in their power to stop this rule," Weissman added. "But despite their enormous economic and political power, they are going to fail. The case for the CFPB's action is just too strong. And the American people, simply, have had enough: We the People will no longer tolerate the banks and Wall Street picking our pockets and buying public policy."

In forced arbitration, consumers lose the right to argue their case before an impartial judge and jury. Instead, big banks and abusive lenders can hire a private arbitration firm of their choosing to decide the dispute, leaving consumers with little opportunity to present evidence or appeal a bad decision. Nearly all of these abusive clauses in financial contracts also prohibit participation in class actions and the practice of forced arbitration even bars consumers from talking about what happened to them -- which means that the public often never learns about corporate scams or fraud.

Class-action bans are used by corporations to prevent consumers who have suffered similar harms from joining together to take on a corporation as a group. In practice, this often allows corporations to break the law without consequence.

During the months while this critical rule is being finalized, Wall Street and other major corporate interests likely will lobby behind the scenes to weaken the rule. One of the main players is expected to be the U.S. Chamber of Commerce, which has been resolute in opposing the CFPB's attempts to protect consumers' right to go to court when harmed by a company. Their big business members expect it - after all, a CFPB study found that 34 million customers recovered $2.7 billion through class actions over a five-year period, more than $500 million per year.

The CFPB conducted that comprehensive study on forced arbitration for several years. The results, released last year, revealed that very few consumers can challenge corporate fraud or abuse when forced to pursue a large company alone. By making sure that consumers can band together to hold companies accountable, the CFPB will ensure that one of the corporate avenues for forcing consumers into arbitration is closed.

Other agencies also are beginning to limit forced arbitration where it harms the public interest within their rulemaking jurisdiction. The U.S. Department of Education released a proposal to address the proliferation of forced arbitration clauses used by the for-profit college industry. The Centers for Medicare & Medicaid Services is considering a limit on arbitration clauses in nursing home contracts.

Previously, Congress has banned forced arbitration in transactions with military service members with respect to payday loans, vehicle title loans and tax refund anticipation loans; auto dealers and automobile and truck manufacturers; livestock and poultry growers; and employees of government defense contractors with Title VII and sexual assault tort claims. The momentum to eradicate this consumer harm is growing.

Public Citizen applauds the CFPB, but also urges it to consider going further to restore consumers' right to choose how to resolve disputes with financial institutions, and go beyond the class context to ban forced arbitration rip-off clauses in an individual context as well.