AFR Statement: CFPB Right to Act Against Forced Arbitration

July 10, 2017

Carter Dougherty
(202) 869-0397

AFR Lauds New CFPB Rule to Restore Consumers’ Right to Hold Banks Accountable in Court

Today, the Consumer Financial Protection Bureau (CFPB) issued a final regulation ensuring that consumers can join together to challenge financial fraud and scams in court. The rule limits the use of forced arbitration, a process Wall Street banks and predatory lenders use to evade accountability and keep their misconduct out of the public eye.

“Forced arbitration deprives victims of not only their day in court, but of the right to band together with other targets of corporate lawbreaking. It’s a get-out-of-jail-free card for lawbreakers,” said Lisa Donner, executive director of Americans for Financial Reform. “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

Consumers are often blindsided to discover that “ripoff clauses” buried in the fine print of financial contracts block them from challenging illegal behavior in court. Instead, banks and lenders push disputes into secret arbitration proceedings rigged in their favor. Most of these clauses also ban consumers from joining together in class action lawsuits – often the only practical means of contesting fraud, illegal fees, and other forms of widespread misconduct.

Wells Fargo, for example, has repeatedly invoked ripoff clauses in legitimate account contracts to block customers from suing together over fraudulent accounts, and the practice helped the bank hide its misconduct for years.

After years of careful study, the CFPB took a more modest approach and did not ban forced arbitration outright. The rule restores consumers’ ability to enforce their rights and protections in class action lawsuits and returns crucial transparency to arbitration by establishing a public record of claims and outcomes.

During the public comment period last August, AFR led 280 consumer, civil rights, labor, and community organizations and more than 100,000 individual consumers across the country in supporting the proposed rule.