WASHINGTON–While credit unions have expressed “concerns” over a new CFPB rule that bans certain “forced arbitration” clauses in credit card, auto loan, student loan, payday loan, and other financial contracts, the Consumer Federation of America is hailing the decision.
“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, senior fellow at the Consumer Federation of America. “This is an important step of restoring law and order to the financial marketplace.”
The CFA noted arbitration is a method that resolves disputes outside the court system, and claimed “tens of millions of financial contracts include clauses that allow companies to block lawsuits from moving forward in court, including those by a group of consumers banding together.”
The CFA pointed out that in 2010, Congress banned forced arbitration clauses in mortgage contracts and also directed the CFPB to conduct a study of forced arbitration clauses and restrict their use if doing so would be in the public interest.
“Today’s rule does not ban forced arbitration altogether,” clarified the CFA. “Instead, it bans arbitration clauses only if they forbid groups of consumers from getting their day in court, sometimes referred to as a class action.”
The CFA continued, “Companies that break the law by overcharging millions of consumers a small amount know that individual consumers have little incentive on their own to spend the time and energy to take the company to court. The most effective way to get a refund is to join together with other consumers in similar situations.”
The consumer group pointed to the CFPB’s 728-page study on forced arbitration, which concluded that forced arbitration limited relief for consumers.
“The final rule is closely tailored to the findings of empirical studies on arbitration and should withstand any frivolous challenges in Court,” Chopra said.