Washington, D.C.—Today in a field hearing in Albuquerque, New Mexico the Consumer Financial Protection Bureau (CFPB), announced its proposed rule to prohibit class action bans in consumer financial product contracts.
Class action bans, generally buried within forced arbitration clauses requiring consumers to waive their right to go to court if a dispute arises, prevent consumers who have been harmed on a systematic basis from joining together to seek remedies from the offending company.
“This rule will restore an important tool to consumers who have been harmed and will also deter bad actors who know that if they mistreat consumers even in small ways, those consumers will be able join together and efficiently get the remedies they are entitled to,” said Rachel Weintraub, Legislative Director and General Counsel at Consumer Federation of America.
This proposed rule is the latest step in a thorough and deliberate process begun with a congressionally mandated report[i]on forced arbitration clauses in consumer financial product or service contracts. That exhaustive 728 page report was followed by the release of an outline of a proposal as part of the CFPB’s small business review process.[ii]
CFPB’s proposal is part of a trend of policy makers recognizing that forced arbitration (individual or class) is detrimental to consumers. Forced arbitration agreements and class action bans are already prohibited in most financial service contracts with members of the military.[iii] They are also prohibited in home loans and lines of credit.[iv] Two other agencies are also looking at rules to limit forced arbitration clause use. The Centers for Medicare and Medicaid Services is considering a ban on forced arbitration in long-term care facility contacts[v] and the Department of Education has introduced proposals that would limit or ban forced arbitration[vi].
“While we would also like to see a ban of individual forced arbitration agreements in all consumer financial contracts, allowing consumers to form class actions will go a long way to leveling the playing field between consumers and financial services companies,” said Tom Feltner, Director of Financial Services at Consumer Federation of America.
Contact: Rachel Weintraub, 202-939-1012; Tom Feltner, 202-618-0310
The Consumer Federation of America (CFA) is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy
[i] 12 USC 5518 Authority to restrict mandatory pre-dispute arbitration https://www.law.cornell.edu/uscode/text/12/5518
[ii] Small business advisory review panel for potential rulemaking on arbitration agreements, October 7, 2015. http://files.consumerfinance.gov/f/201510_cfpb_small-business-review-panel-packet-explaining-the-proposal-under-consideration.pdf
[iii] 10 U.S. Code § 987 – Terms of consumer credit extended to members and dependents: limitations https://www.law.cornell.edu/uscode/text/10/987
[iv] 12 CFR 1026.36 – Prohibited acts or practices and certain requirements for credit secured by a dwelling https://www.law.cornell.edu/cfr/text/12/1026.36
[v] Medicare and Medicaid Programs; Reform of Requirements for Long-Term Care Facilities. https://federalregister.gov/a/2015-17207
[vi] Negotiated Rulemaking for Higher Education 2016 – Borrower Defenses, Session 3, Issue Paper 5, March 16-18, 2016. http://www2.ed.gov/policy/highered/reg/hearulemaking/2016/bd3-i5-finclresp.pdf