The next step in the fight to protect consumers

The Consumer Financial Protection Bureau (CFPB) is moving quickly to tackle a massive, under-the-radar consumer problem: forced arbitration clauses. Last week, it proposed a rule to limit the financial industry’s use of forced arbitration in certain contracts.

{mosads}These clauses, buried in the fine print of contracts for products like car loans, checking accounts, payday loans and credit cards, victimize consumers by making it significantly more difficult for those who have been cheated or are victims of illegal conduct to get any relief. The clauses do this by denying consumers the right to take companies that harm them to court.

One of the worst aspects of these problematic clauses is that consumers who are subject to them usually don’t know the rights they are giving up. (According to the CFPB’s critically important study, which laid the groundwork for this rule-making, only 7 percent of consumers understand that the fine print they signed means they can’t seek relief in court.)

In an arbitration proceeding, there is no publicly accountable judge, jury or right to an appeal. The arbitrators do not have to follow the facts or the law, and there is no public review of decisions to ensure the proceedings got it right.

The CPFB’s landmark rule will deal with these ripoff clauses in their most commonly found incarnation — when they are combined with class-action bans to also eliminate the ability of consumers to band together against corporate bad actors (in many circumstances, the only means to vindicate their rights.) Class actions can provide real and meaningful benefit to harmed consumers and can result in reforming bad business practices to further the public interest. Over a five-year period, 34 million customers recovered $2.7 billion through class actions from corporations that harmed them — that’s more than $500 million per year.

With the CFPB and its director, Richard Cordray, tackling this issue head-on, it should come as no surprise that those most invested in stopping the agency are the large corporations (and their trade association, the U.S. Chamber of Commerce), which use these clauses to force consumers to arbitrate behind closed doors and ban them from joining together.

The chamber claims that “arbitration is cheaper, faster, and more effective” for consumers. And while it is somewhat laughable that an entity with a mission of protecting business would claim to represent the consumer viewpoint at all, there is also a major gap in the chamber’s argument.

The flaw can be found in the word “forced.” If arbitration was truly better for consumers, they would choose it. There would be no reason and no need to force consumers to arbitrate instead of allowing them to hold companies accountable in court if it were truly the better option for them.

The chamber’s viewpoint is obvious, and we know that their attacks will only get louder and less subtle as we move through the 90-day comment period on the CFPB’s proposed rule. We encourage the agency to stand firmly grounded in the data from its own study and to continue down its path to protect Main Street consumers.

Creating a strong rule in this space fits perfectly with the mandate of an agency tasked with protecting consumers from secretive corporate-driven practices intended to restrict consumers’ rights. We hope that the final regulation goes even further than the initial proposal and bans forced arbitration clauses for individuals as well as in the class actions, and we loudly applaud this important step in the fight to protect consumer rights.

Gilbert is the director of Public Citizen’s Congress Watch division.