Since Congress in 2017 voted
to disapprove the Consumer Financial Protection Bureau’s (CFPB) rule to prohibit
mandatory arbitration agreements in financial contracts via the Congressional
Review Act (CRA) by a slim 51-50 margin, with a tie-breaking vote by then-Vice
President Mike Pence, consumer advocates have continued to contest the
decision.
The National Association of Consumer Advocates (NACA) submitted
a September petition urging the CFPB to take up new rulemaking to ban mandatory
pre-dispute arbitration, also known as “forced arbitration.”
“The use of pre-dispute arbitration requirements in
contracts represents a ‘whole-scale privatization of the justice system,’ and
creates a severe power imbalance of one side over another in the resolution of
legal claims,” the NACA wrote in its petition. “Consumers’ interests are
protected by competitive markets where they can make informed and meaningful
choices about the products they use and the terms of service they are bound to,
but the evidence shows that consumers are not aware of—and are not meaningfully
consenting to—forced arbitration provisions. These provisions block consumers
from making informed decisions about dispute resolution at the appropriate
time—that is, after a dispute arises.”
The petition was met with a favorable response from CFPB Director
Rohit Chopra in a November statement addressing the more than 100 consumer
advocacy groups represented by the NACA.
“Forced arbitration is systematically biased against
consumers. In such an unfair playing field, with no transparency and no ability
to appeal decisions, financial services providers overwhelmingly prevail
against consumers,” Chopra said. “The United States Constitution gives people
the right to a jury trial. And yet, a recently released study from the
University of Michigan’s law and psychology lab re-affirmed what the bureau found
in 2015: 99 percent of consumers trapped by the fine print of forced
arbitration clauses have no awareness or understanding of the fundamental
rights they have unknowingly given up. Compounding this, women, Black, and
indigenous people of color (BIPOC) are more likely than white men to be forced
into arbitration, exposing these populations to further inequities within a
forced arbitration system that already disproportionately impacts BIPOC,
low-income or female consumers.”
Several organizations representing banks, credit unions and
other financial services providers voiced opposition to the petition.
“Relying on the protections that Congress put in place when
it enacted the Federal Arbitration Act (FAA), numerous businesses, including
many companies that provide financial products or services, have for decades
resolved consumer disputes by arbitration rather than through costly and
burdensome litigation in our overburdened court system,” the trade groups wrote
in a letter to the bureau. “Arbitration reduces transaction costs and enables
fair, speedy, and efficient dispute resolution, thereby providing significant
advantages to consumers, businesses, and the public at large. Petitioners offer
no valid basis for depriving the public of these advantages, and there is
none.”
Many of the arguments
given for and against forced arbitration clauses reflect those presented at
the time the CFPB’s original arbitration rule was voted down.