United States House of Representatives
Washington, D.C. 20515
December 7, 2009
We write to express our support for Sec. 4208 of the Consumer Financial Protection Agency (CFPA) Act, Title IV of H.R. 4173, which authorizes the CFPA to restrict or prohibit the use of forced arbitration clauses in agreements for financial products or services. We strongly oppose any amendments to strip the CFPA of this authority.
Buried in the fine print of credit card billing inserts, bank account agreements, and payday loan applications, forced arbitration clauses strip Americans of their access to the courts, and force them instead into a private system set up by corporations to favor corporations. Financial services companies place these forced arbitration clauses in their contracts to shield themselves from accountability for wrongdoing, because consumers are forced to bring claims before arbitrators who rely on the corporations for repeat business. Until recently, the largest consumer arbitration provider in the country, National Arbitration Forum, had extensive financial ties to the debt collection industry. Unsurprisingly, arbitration outcomes heavily favor corporations (also known as “clients”) over consumers.
Forced arbitration is exactly the sort of predatory practice that the CFPA is designed to address:
- Forced arbitration is unfair to consumers, as demonstrated by the fact that arbitrators rule for credit card companies almost 95 percent of the time;
- Consumers do not like forced arbitration, as demonstrated by the fact that 60 percent of Americans polled oppose it;
- Consumers are generally unaware of forced arbitration, as 64 percent of those polled cannot remember reading about forced arbitration provisions in the Terms of Agreement for goods and services that they buy; and
- Consumers are unable to avoid forced arbitration, as 75 percent of studied consumer contracts contain a forced arbitration provision.
Forced arbitration is especially harmful because it enables companies to violate federal lending laws with impunity. Biased arbitrators have been empowered to undermine well-established federal consumer protections under the Truth in Lending Act, the Fair Debt Collection Practices Act, the Home Owners Equity Protection Act, the Consumer Leasing Act, the Credit Repair Organizations Act, Fair Credit Reporting Act, and the civil provisions of the Racketeer Influenced and Corrupt Organizations Act.
Forced arbitration must be addressed at the federal level, by the CFPA, because state regulations limiting mandatory binding arbitration are preempted by the Federal Arbitration Act (FAA), leaving states powerless to protect their citizens.
On behalf of millions of American consumers, we urge you to support the CFPA’s arbitration authority and reject any attempts to weaken this provision.