Washington, D.C. – Yesterday, the Consumer Financial Protection Bureau (CFPB) released a proposal to eliminate class action bans in consumer financial contracts – an important step forward in ensuring that consumers have access to the court system to seek relief when they have been harmed by a financial practice. Arbitration agreements are included in contracts for a wide range of consumer financial products, including credit cards and payday loans, and require that consumer claims be decided by a private entity chosen by the company rather than a judge and jury.
“Financial services providers include arbitration agreements in their contracts for the purpose of limiting a consumers access to relief,” said Tom Feltner, director of financial services at the Consumer Federation of America. “Today’s proposal, if finalized, would restore consumers’ ability pursue class actions when abuses are widespread and provide an important deterrent to future bad practices.”
The proposed ban follows a comprehensive study of arbitration clauses in financial product contracts released in March 2015. The report, the most comprehensive empirical study of arbitration agreements to date, found that consumers rely on class actions to achieve relief and that arbitration clauses act as a barrier to important class actions. The report also found that consumers are unlikely to know that arbitration clauses limit their right to pursue their claim in court.
The CFPB’s proposal does not propose to eliminate arbitration clauses that prohibit consumers from pursuing claims against a company as individuals. Instead, the proposal would require companies to disclose the number of claims filed and awards issued in arbitration.
“Disclosure alone is not enough to protect consumers’ right to hold financial providers accountable for abusive practices,” said Feltner. “We urge the Bureau to prohibit arbitration agreements that limit consumers’ access to justice as part of a class action or individually.”
The proposal will be reviewed by panel of small business stakeholders and is the first step in a CFPB rulemaking.
Contact: Tom Feltner, 202-618-0310
The Consumer Federation of America is an association of more than 250 nonprofit consumer groups that was established in 1968 to advance the consumer interest through research, advocacy, and education.