A group of congressional Democrats recently joined the collective
push for the Consumer Financial Protection Bureau (CFPB) to create a new rule prohibiting
companies from using forced arbitration clauses in consumer financial
agreements. The letter came on the heels of another in which over 160 law
professors argued such rulemaking could vary enough from the bureau’s
previously nullified arbitration rule to satisfy the Congressional Review Act
(CRA).
The 93 representatives undersigned in a letter submitted to
CFPB Director Rohit Chopra in December explained how forced arbitration allegedly
undercuts the bureau’s efforts to protect consumers from bad actors in the
financial marketplace.
“Unfortunately, many regulations and laws intended to
protect consumers continue to be undermined and rendered meaningless by
provisions jammed into fine print, such as forced arbitration clauses,” the
letter states. “Though Congress has limited the use of forced arbitration for
certain sectors and cases, the bureau is best positioned to issue a rulemaking
on forced arbitration for financial products and services.”
The CFPB previously finalized a rule limiting class action
waivers in financial contracts only to have it annulled in 2017 via a CRA
resolution. Following a 50-50 vote in the Senate, split along party lines,
then-Vice President Mike Pence cast the decisive tie-breaking ballot to repeal
the rule.
More than 100 civil rights, labor and consumer rights
advocacy groups reignited the forced arbitration debate when they petitioned
the bureau in September to take up a new rulemaking to prohibit such clauses,
which disproportionately favor corporations.
However, per CRA provisions, any new rulemaking the bureau
may promulgate to address forced arbitration must not be “substantially the
same form” as the repealed rule, unless Congress provides further
authorization.
This issue was addressed by more than 160 law professors who
wrote to the bureau in November, asserting “[m]ultiple studies have
demonstrated that consumers do not understand arbitration clauses” and that the
CFPB could craft a rule substantially different from the one nullified by
Congress.
“The petition at issue here proposes a markedly different
direction: it seeks no prohibitions, but rather, requests a rule that would
address the lack of consumer consent to arbitration, making no distinctions
between individual, class, and collective actions,” the professors wrote. “Not
only does the proposed rule not address class action waivers, it would also
cover individual actions that would not have been affected by the 2017 rule.
“As for rationale, the 2017 rule was motivated by a desire
to enable consumers to seek resolution of disputes in class actions. The rule
was based on findings that forced arbitration was ‘being widely used to prevent
consumers from seeking relief from legal violations on a class basis.’”
Chopra indicated he would be open to exploring the
possibility of a new rule on forced arbitration in response to the September
rulemaking petition.