Earlier this year, we used this space to discuss new rules against forced arbitration proposed by the Consumer Financial Protection Bureau (CFPB), which would help prevent financial institutions from locking consumers into agreements that take away their rights to participate in group legal actions, such as class-action lawsuits.
Recently, Nan Aron, president of the Alliance for Justice, penned a great piece for U.S. News & World Report highlighting just why these “forced arbitration” clauses, so often buried in fine print, force consumers into “a rigged game” that is “extraordinarily unfair.”
As Aron writes:
“If you have a dispute with a company that requires forced arbitration, you’ll find yourself trapped in a privately-run system that exempts corporations from having to resolve disputes on the level playing field of the courts.”
These forced arbitration disputes, Aron writes, force consumers to go before a private arbitrator, generally hired by the company against whom the complaint is being lodged. The arbitrator’s findings, though freed from the precedents and standards of the court system, are almost always binding and incapable of being appealed.
And perhaps even worse, forced arbitration in financial contracts explicitly prohibits consumers from joining together and filing class-action lawsuits in court, meaning that the Average Joe is “forced to go up against the corporation alone, one-on-one, in a system that places [the consumer] at a significant disadvantage.”
The rules as they stand create an environment that makes it extremely difficult for consumers to advocate for fair treatment, allowing corporations to run more or less unchecked and undeterred by the threat of any challenges. And this lack of challengers isn’t just hypothetical. As Aron reports, the CFPB found that “each year only 25 consumers file claims worth under $1,000, and over a three-year period, only 32 times did a consumer win relief.”
If there is any good news, it’s that this proposed CFPB rule change could have a major impact on not just banks and other businesses that issue credit cards, make loans, provide checking, or offer additional financial services, but create a ripple effect that creates a more consumer-friendly marketplace in other industries, including vacation, travel, and timeshare.
According to Aron, “in recent days, more than 100 members of Congress and the Senate signed on to two letters supporting the proposed rule.” As regulators continue to weigh the decision, consumers and consumer protection advocates are sure to be watching with bated breath.
For more, we encourage you to read Aron’s full piece over at U.S. News & World Report.