CFPB Pushes to Ban Mandatory Arbitration Clauses in Consumer Contracts

Days ago, officials at the Consumer Financial Protection Bureau (CFPB) announced a new proposal that would ban mandatory arbitration clauses in consumer contracts.

Intended to protect consumers’ rights and enhance their options when those rights have been violated, the new proposal could effectively allow consumers to pursue individual and class action lawsuits when disputes arise.

How Mandatory Arbitration Clauses Can Impact Consumers’ Rights

These days, many providers of consumer services, as well as financial and lending institutions, include mandatory arbitration clauses in their contracts. These clauses, which the CFPB notes “affect hundreds of millions of consumer contracts,” usually require that any consumer dispute raised against a company has to be resolved via private arbitration.

In other words, even if hundreds or thousands of consumers have the same dispute with a company or are affected by the same (mis)conduct, each consumer must raise his dispute individually, via private arbitration – rather than joining together to file a class action case – when mandatory arbitration clauses apply.

According to the CFPB, “class actions provide a more effective means for consumers to challenge problematic practices by these companies.” In fact, as the CFPB has found (as a result of a 2015 study it conducted):

• Class actions can effect important changes in corporate policies and practices that lead to the violation of consumer rights and consumer disputes.
• Over the last 5 years, at least 160 million Americans have had viable class action claims due to the violation of their consumer rights.
• Settlements or awards for these claims total an estimated $2.7 billion.
• When, however, consumers with claims against companies had signed mandatory arbitration clauses, companies are empowered to block class action claims.

If, however, the CFPB’s proposal takes effect, businesses would no longer be able to limit consumers’ options for resolving disputes, and the CFPB would reportedly be empowered to “monitor the individual arbitration process” in order to shed light on “whether companies are abusing arbitration or whether the process itself is fair.”

Elaborating on the benefits of this proposal, CFPB Director Richard Cordray has explained that:

Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong… Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.

The Next Steps…

At this point, the CFPB is seeking public comment on this proposal. The comment period will be open through July, after which point officials will carefully consider the submissions before “any final regulations are issued.”

What do you think about the CFPB’s proposal? Sound off on our Facebook pages.

Contact the Los Angeles Class Action Attorneys at the Azadian Law Group, PC

If your consumer rights have been violated – or if a company’s false claims about its products have harmed you, contact the Los Angeles class action attorneys at the Azadian Law Group, PC for a free case to review to find out more about your options for recovery and justice.

Call us at 626-449-4944 or send us an email via this contact form to find out more about how we can help you. If you choose to move forward with us, you will not have to pay us any legal fees until or unless compensation is secured for your case.

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