CFPB Takes Important Step In Fight Against Forced Arbitration
Yesterday, the Consumer Financial Protection Bureau (CFPB) took an important step in the fight against forced arbitration. The consumer watchdog announced a new rule to ban companies from using mandatory arbitration clauses that prevent consumers from banning together in court.
Binding arbitration clauses appear in all forms of consumer contracts, big and small. Virtually every time you use a credit card, join a gym, buy a car or use your cell phone you are giving up your legal rights. These clauses often prevent consumers from joining together to hold bad-acting companies accountable. When consumers have disputes with one of these companies, they are forced out of court and into the closed, costly, and tilted process of arbitration with little hope of appeal.
In a three-year study, the CFPB uncovered the serious harms to consumers that result from forced arbitration and class action bans. The study revealed a system rigged against the consumer, a rip-off clause hiding in the majority of consumer contracts. For example, the CFBP found that only 9% of consumers with affirmative claims in arbitration got any relief – recovering an average of just 12 cents to every dollar claimed. In contrast, 93% of companies won in arbitration, receiving an average of 98 cents on the dollar.
Texas Watch joined 280 consumer, civil rights, labor, and community groups and more than 100,000 individual consumers across the country last August to support the proposed rule. The CFPB rule opens the courthouse doors to millions of Americans and ensures consumers can enforce their rights in court.