FOR IMMEDIATE RELEASE
Oct. 11, 2024
CONTACT:
Carter Dougherty
carter@ourfinancialsecurity.org
CFPB Enforcement Action Challenges Abusive Forced Arbitration Practice
Also highlights need for more comprehensive action against this abusive process
The Consumer Financial Protection Bureau’s (CFPB) recent enforcement action against Ejudicate, a forced arbitration platform, highlights the urgent need to restrain a practice that hurts millions of consumers. The agency found Ejudicate had misled student borrowers about its neutrality in arbitration and illegally started sham forced arbitrations against those borrowers.
“Forced arbitration clauses are a convenient corporate shortcut to hide misconduct that tricks people into giving up fundamental rights. Consumers need tough curbs on forced arbitration, not only in this instance, but across the board,” said Christine Chen Zinner, senior policy counsel at the Americans for Financial Reform. “This enforcement action reinforces the CFPB’s commitment to fair contract terms and a level playing field for consumers.”
Ejudicate had been running sham forced arbitration proceedings on behalf of Prehired, a private, for-profit vocational software sales training program that charged up to $30,000 per customer and then engaged in a number of predatory and deceptive acts to collect on loans incurred from these charges.
Prehired failed to disclose key financing terms as required by law, and customers who took out loans to finance the training program were misled into believing that Prehired’s income share loans were not actually loans. The company would then unfairly file debt collection lawsuits in jurisdictions far away from where customers actually lived and where they had agreed to the financing terms. Due to its many illegal lending practices, Prehired was permanently shut down by the CFPB and many state attorneys general in 2023.
When Prehired’s illegal debt collection practices were first investigated, it unilaterally changed its terms and conditions and forced all debt disputes into arbitration with Ejudicate, without giving customers an opportunity to consent to these changes. Instead, Prehired customers who had taken out loans and simply wanted to review any debt collection claims filed against them suddenly found themselves in forced arbitration proceedings to collect on tens of thousands of dollars. Furthermore, despite billing itself as a “neutral and unbiased,” Ejudicate was actually paid by Prehired on a contingency fee basis for each settled claim in arbitration.
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