Arbitration clauses would be limited
At a hearing on May 5, Consumer Financial Protection Bureau Director Richard Cordray announced that the agency has issued a proposed rule that would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their customers the right to join class action lawsuits.
The proposed rule can be read here, and is also found on CFPB’s website. When the proposal is published in the Federal Register, the public will have 90 days to comment.
Director Cordray stated in his comments last Thursday that this rule is a benefit to consumers because it will discontinue the practice of entities inserting arbitration clauses into contracts for consumer financial products and services and literally “with the stroke of a pen”, blocking any group of consumers from filing class actions. He said the CFPB’s research indicates that these “gotcha” clauses force consumers to litigate over small amounts ($35 – $100) acting alone against some of the largest financial companies in the world.
Some authorities are arguing that consumers will not be benefited by the proposal because of the high cost of class actions and the fact that it is often lawyers, not consumers, who benefit financially from them. The proposal does seems contrary to the Federal Arbitration Act and legal precedent and also demonstrates the power of the agency, the power that has already been challenged in several lawsuits nationwide. Some might suggest that the agency is the entity that acts “with the stroke of a pen.”
The proposed rule does not reach to title insurance and real estate settlement services. The rule applies to products and services that extend, service, report and collect credit.
One fact seems certain. The CFPB has not completed its efforts to shake up the market!