Consumer Finance Protection Bureau Targets Arbitration Clauses

Consumer finance industry awaits a proposed class action waiver ban

By Doug Chartier

LAW WEEK COLORADO

Banks and other companies in the consumer finance industry have leaned heavily on their arbitration clauses to block class action lawsuits. But that could change with a new rule to be revealed soon.

The Consumer Finance Protection Bureau is planning to ban consumer financial companies from using arbitration clauses to keep their customers from pursuing relief by class action. These class action waivers, which companies have been increasingly including in their agreements with consumers, are a “free pass to sidestep the courts and avoid accountability for wrongdoing,” according to the CFPB.

The CFPB’s movement to limit their use in consumer financial product agreements is taking center stage in a pushback movement against the clauses. In October, the CFPB announced it would propose a ban on class action waivers in consumer financial companies’ arbitration provisions.

“Arbitration clauses, as they are used today both in the field of consumer finance and more generally, often have been deliberately designed to block Americans from effective means of vindicating their rights,” CFPB director Rich Cordray told the American Constitution Society in a speech delivered Feb. 18. He said “a take-it-or-leave-it provision buried deep inside a form contract can nullify an individual citizen’s ability to vindicate rights conferred on them by federal and state law.”

To read this story and other complete articles featured in the April 11, 2016 print edition of Law Week Colorado, copies are available for purchase online.