Brown Urges Action to Protect Consumers' Rights in Disputes with Financial Services Providers
Calls On Top Consumer Agency to Ban Mandatory Arbitration Clauses that Harm Consumers
WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH) –– ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs –– today urged the nation’s top consumer agency to protect consumers’ right to seek legal relief in disputes with financial services companies.
Brown joined more than 50 members of Congress in calling on the Consumer Financial Protection Bureau (CFPB) to eliminate the use of mandatory arbitration clauses that are often buried in the fine print of checking accounts, private student loans, credit cards, and other contracts. These clauses prevent consumers from taking companies to court or participating in class action lawsuits when a dispute arises. The full text of the letter can be found here.
“Consumers in Ohio and across our country deserve the right to seek justice in court when they’ve been wronged, but many don’t know they’re giving up that right through mandatory arbitration,” said Brown. “The CFPB has provided clear and compelling evidence of how mandatory arbitration tramples on consumers’ rights. It’s time to ban this unfair and unjust practice that puts the interests of corporations ahead of consumers.”
In March, the CFPB issued a study that found that the rights of consumers nationwide are being limited by mandatory arbitration in the financial services industry.
According to the CFPB, on average, 32 million Americans are eligible for financial relief each year but consumers who are subject to mandatory arbitration agreements often lose out on that money. The study also found that there is no evidence that companies that use mandatory arbitration agreements – and therefore avoid some litigation costs – lower prices or increase access to credit for consumers as a result. A fact sheet of the report can be found here.
Brown continues to fight for fair financial practices for consumers. He is a cosponsor of the Arbitration Fairness Act of 2015, which would make mandatory arbitration agreements unenforceable in the case of employment, consumer, antirust, or civil rights disputes.
The full text of the letter to the CFPB is below:
May 21, 2015
The Honorable Richard Cordray
Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552
Dear Director Cordray:
We write to commend the Consumer Financial Protection Bureau (CFPB) for completing its study on the use of mandatory, pre-dispute arbitration (“forced arbitration”) in consumer financial products or services contracts, and to urge the CFPB swiftly to undertake a rulemaking to eliminate the use of forced arbitration clauses in these contracts.
These clauses force individuals into private binding arbitration as a condition of buying a product or service, and are designed to stack the deck against consumers and ensure that the final outcome of forced arbitration is unreviewable by courts. Forced arbitration clauses—often buried deep within the fine print of financial products and service contracts—harm American consumers by depriving them of their day in court even when companies have violated the law.
Recognizing the potential harm to the rights of consumers, workers, and small business owners, Congress has taken several actions to limit the harmful effects of forced arbitration agreements. To date, Congress has passed a series of laws to limit the abusive use of forced arbitration clauses whistleblower claims under the Sarbanes-Oxley Act of 2002. Congress directed the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to study forced arbitration clauses and gave the CFPB express authority to issue regulations to prohibit or limit these clauses in consumer financial contracts.
The CFPB’s comprehensive report underscores the devastating effects of forced arbitration on tens of millions of consumers. The study found not only that more than three in four consumers were unaware of forced arbitration clauses in their contracts, but also that consumers rarely use arbitration on an individualized basis, especially for small-dollar claims, and that there is no evidence that forced arbitration lowers costs for consumers. The findings also demonstrate that forced arbitration clauses often prevent consumers from banding together through class actions, even though it is clear from the study that collective action more effectively compensates individuals and deters abusive corporate practices than arbitration on an individual basis. Indeed, while class actions resulted in over $200 million in average yearly settlements for consumers, disputes settled through arbitration netted just over $350,000 in damages and debt forbearance for consumers over a two-year period.
In total, the study conducted by CFPB at Congress’s request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial services. Moreover, forced arbitration shields corporations from liability for abusive, anti-consumer practices, encouraging even more unscrupulous business conduct at the expense of individuals and law abiding businesses.
Based on this substantial bedrock of evidence, we urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise.
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