CFPB head Richard Cordray summarized two key study findings. “Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact,” said Cordray. “Our study found that these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.
So what will the CFPB do about arbitration clauses and their effect on class actions? The Dodd Frank Act mandated that the CFPB issue regulations consistent with the study. “Now that our study has been completed, we will consider what next steps are appropriate,” said Cordray.
Consumer advocates are predicting that the CFPB will use the study as a support for prohibiting arbitration clauses: “The findings of the CFPB’s study are crystal clear. These clauses are written by corporations to set up a secret and lawless process that prevents consumers from holding corporations accountable for unlawful conduct. The CFPB should act quickly to ban forced arbitration in consumer financial contracts,” said National Consumer Law Center attorney David Seligman.
Predictably, many industry groups favor arbitration clauses and argue that they should be preserved, even if (and precisely because) they are used to defeat class actions. It may be too early to tell how this will all be resolved, but there is a clear sense that the momentum on this issue has shifted in favor of consumers.
– Stephen G. Harvey