Democrats are pushing a government agency to overhaul financial contracts to eliminate language that bars consumers from taking companies to court.
Fifty-eight lawmakers told the Consumer Financial Protection Bureau that it should act immediately to ban common contract language that leads consumers to “unknowingly sign away their rights.”
{mosads}The push targets what is known as forced or mandatory arbitration clauses, language buried in contracts for financial products like credit cards, payday loans and checking accounts. That legal language, which many Americans are unaware they are even subject to, prevent consumers with grievances from challenging the companies in court.
The Democrats, which include the top members of both chambers’ banking panels and consumer stalwarts like Sens. Al Franken (D-Minn.) and Elizabeth Warren (D-Mass.), argue the language encourages bad behavior by companies, while depriving Americans of their day in court.
“We urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise,” the lawmakers wrote.
Mandatory arbitration language was already on the CFPB’s radar as an issue, as the regulator issued a report in March that found consumers were being unfairly limited in their legal options by the clauses.
The report found that three-quarters of Americans were not aware they were limited to private arbitration by their financial contracts, and on average, consumers received significantly smaller payouts under arbitration than they otherwise would have in court.
The CFPB found that in 2010 and 2011, consumers received about $175,000 from arbitrators, compared to just under $1 million when taking companies to court.
Despite the criticism, industry groups have defended arbitration language as a way to ensure an inexpensive way to address consumer disputes. The U.S. Chamber of Commerce dismissed the March CFPB report as “unfair and biased.”