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CFPB Cracks Down on Forced Arbitration

May 05, 2016

For more than a quarter century, forced arbitration clauses have allowed big businesses to bully consumers and keep complaints of corporate misconduct out of the courts. Forced arbitration means all complaints must go through a private decision maker instead of going before a judge and jury. Unlike a public court case, arbitrations are closed proceedings, and the evidence presented and decisions made are often kept secret from law enforcement agencies and regulators, protecting companies from having their illegal activity revealed to the public. One study showed that arbitrators rule in favor of companies and against consumers 94% of the time. By ruling for corporations, arbitrators ensure those corporations will hire them again.

The Consumer Financial Protection Bureau (CFPB), a government agency responsible for consumer protection in the financial sector, recently conducted a study on the impacts of forced arbitration, which it released in March of 2015. The CFPB found that when consumers could go to court as part of a class action, they were able to recover billions of dollars in relief. Banks had to refund overcharges, erase illegal or inflated debts, and correct inaccurate credit reports. When consumers were forced into arbitration, however, many of those victories disappeared. If you have a credit card or checking account, there is a good chance you have signed away your legal rights in one these clauses.

Today, the CFPB is standing up for consumers and leveling the playing field with a new rule, saying banks can no longer use forced arbitration clauses to ban consumers from filing or participating in class action lawsuits. That means banks won’t be able to block the most effective means consumers have for fighting back against illegal behavior. It also means that consumers will be able to get their day in court, rather than being forced to resolve disputes through an unfair, privatized system of arbitration a process that typically favors the arbitrator’s corporate benefactors. With this new rule, Wall Street and big banks will no longer be able to hide behind the fine print of long form contracts or “terms of service” and consumers will be able to take their disputes to court.

For more information on how the CFPB is standing up for consumers in the financial industry read this post by Paul Bland of the Public Justice Foundation.