Letters to Regulators: Letter to the CFPB on the Need for Action to Limit Forced Arbitration

View or download a PDF of the letter here.

September 13, 2022 

The Honorable Rohit Chopra
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552 

Re: Critical Need for Action to Limit Forced Arbitration 

Dear Director Chopra: 

The undersigned organizations representing millions of consumers call upon the Consumer  Financial Protection Bureau (CFPB) to continue its work and exercise its explicit authority to limit  the use of forced arbitration requirements utilized by banks and financial institutions to strip  Americans of their right to seek justice after being victimized by banking abuses or fraud. The  Bureau’s own data confirmed that forced arbitration hurts consumers and deprives the vast  majority of banking customers of the right to seek meaningful accountability; that widespread,  systemic banking fraud and abuse cannot be effectively addressed in forced arbitration; and that  these restrictive clauses are regularly blocking millions of consumers from seeking justice. State  and federal laws exist to empower and protect consumers when banks and financial institutions  violate the law, but without a regulation to limit forced arbitration, the promise of these laws will  never be realized by most consumers. Forced arbitration deprives Americans of their rights in cases  of banks’ clear and widespread abuse. The CFPB should act to restore those rights.  

As you know, Congress directed the Bureau to study the use of forced arbitration clauses in the  consumer finance market and authorized it to write a rule to limit or restrict the practice in the  Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau’s wide-ranging 2015  study, where it examined the use of forced arbitration in six different consumer financial services  markets, verified the extreme power imbalance we have long observed between consumers hurt  by banks and financial institutions that break the law. 

The study found that tens of millions of consumers were subject to forced arbitration clauses and  class action bans in their credit card, deposit account, prepaid account, student loan, payday loan,  and wireless carrier contracts.1 Additionally, the data suggested that only a small minority of  consumers ever actually filed for forced arbitration and that forced arbitration produced vastly  more favorable results for corporations rather than consumers. Only about 600 consumers filed for forced arbitration in each year studied, and most of the forced arbitrations filed were for claims  over $1000.2 Out of 1,060 claims filed over a two-year period, consumers only obtained relief in  78 cases, recovering a total of less than $400,000.3 In fact, arbitrators are more likely to order consumers to pay corporations than the other way around.4 Conversely, the study determined that  approximately 32 million consumers were eligible for remedies from financial services class  actions each year and they collectively recovered at least $220 million each year.5 

The Bureau’s eventual rule in 2017, which prohibited regulated entities from using forced  arbitration clauses that bar consumers from enforcing their rights by participating in class or  collective actions, would have restored rights and leveled the playing field for millions of  consumers. We were exceedingly disappointed that Congress voted by the narrowest of margins  to disapprove the rule before it could go into effect. However, the Bureau’s statutory authority to  address this widespread problem on behalf of consumers and the public interest remains and the  abusive use of forced arbitration by the banking industry has only grown worse in the intervening  years. The Bureau can and must exercise its authority in any number of ways that would not be  substantially the same as the regulation Congress acted to nullify. 

Given how deeply embedded basic financial services are in consumers’ everyday lives and the  scale of harm that occurs in the financial services marketplace on a daily basis, it is essential that  consumers have the ability to vindicate their rights in court, whether as individuals or as part of a  group. We commend the CFPB for its newly strengthened stance on enforcement while  acknowledging that in this large market and with the constraints on regulators’ enforcement  resources, it is extremely difficult for the Bureau to identify and remedy most or all instances of  systemic consumer harm without also ensuring that consumers are empowered to act as a group and on their own in the courts. 

Further, recent developments concerning forced arbitration generally, such as the recent bipartisan  enactment of the “Ending Forced Arbitration for Sexual Assault and Harassment Act,” which  allows assault and harassment survivors to choose to file a case in court rather than be forced into  arbitration, have further underscored how unfair and insidious forced arbitration is and how  unpopular it is with the vast majority of the American public.  

Because American consumers who’ve been defrauded or ripped off by their bank, lender, or credit  card company must be allowed the chance to seek justice and accountability, especially for  systemic and recurring abuse, we urge the Bureau to act now to rein in forced arbitration in  financial services. It must seize this opportunity and revisit this unfair practice and its ongoing,  damaging impact on this market.