Including California, have asked the federal government to protect consumers from mandatory arbitration clauses in contracts covering financial services. The group co-signed a letter to the U.S. Consumer Financial Protection Bureau (CFPB) last month. These clauses are written into contracts by financial services companies for a wide range of financial products including credit cards, payday loans and checking account agreements.These clauses forbid consumers from taking disputes to court and/or making it prohibitively expensive to sue financial institutions by restricting consumers’ rights to bring a class-action lawsuit. Unlike court proceedings, arbitration cases are private alternate dispute resolution processes whereby decisions are kept confidential.
Decision makers are normally chosen by corporate defendants. The ability to obtain evidence can be restricted. Class claims are usually banned, and the party losing the case (normally the consumer) could be forced to pay the costs and, sometimes, attorneys’ fees of the winning party.These form agreements need to be agreed to before opening a checking account or getting a credit card, so consumers essentially have no bargaining power to negotiate or insist these provisions be removed from contracts. Financial institutions include the arbitration clauses into the fine print of contracts. Unless consumers study the contracts they may not be aware of, or understand, what they are agreeing to. Given how popular these clauses are, it may be impossible for consumers to find a financial services company not insisting their customers use arbitration. The Attorneys General asked CFPB Director Richard Cordray to protect consumers’ fundamental rights to assert their claims in court. “The need for regulations to protect the public interest has never been so great,” the Attorneys General wrote.
“Over the past decade, judicial decisions and business practices have diminished consumers’ rights and bargaining power with respect to contracts for financial services.”It was sent to the CFPB to be part of the agency’s investigation into the effects of mandatory arbitration clauses. The 2010 federal Dodd-Frank Wall Street Reform and Consumer Protection Act mandates the CFPB to conduct research before deciding if mandatory arbitration clauses harm consumers. Such research could impact regulations of the financial industry proposed by the agency.The letter was organized by Delaware Attorney General Beau Biden, Massachusetts Attorney General Martha Coakley and Kentucky Attorney General Jack Conway. Attorneys General from California, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington also signed the letter.