Today, the Consumer Financial Protection Bureau (CFPB) released a new rule proposing the prohibition of mandatory arbitration clauses that deny groups of consumers their day in court. In the last several years, many contracts for consumer financial products and services – from bank accounts to credit cards to cellular phone contracts – have included mandatory arbitration clauses. These clauses affect hundreds of millions of consumer contracts and typically state that the company can require that disputes with consumers be resolved by privately appointed individuals (arbitrators). Where these clauses exist, companies are able to block lawsuits from proceeding in court. These clauses also almost always bar consumers from bringing class action claims through the arbitration process. As a result, no matter how many consumers are injured by the same unlawful conduct, they must proceed to resolve their claims individually against the company, often before arbitrators that rule in favor of the company 99% of the time.
In 2015, the CFPB released a comprehensive study showing that very few consumers ever bring – or think about bringing – individual actions against their financial service providers either in court or in arbitration. The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies. According to the study, class actions succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct.
The CFPB proposed rule issued today would ban companies from putting mandatory arbitration clauses in new contracts that prohibit class action lawsuits against them. The proposal would once again open up the legal system to consumers. Groups of consumers would have the opportunity to obtain relief from the legal system, and many companies would also be incentivized to comply with the law. Also, the CFPB would be able to monitor the individual arbitration process, providing insight into whether companies are abusing arbitration or whether the process itself is fair.
Teske Katz Kitzer & Rochel attorneys have spent years both inside and outside the courthouse advocating for consumers’ ability to seek redress in courts nationwide when they are harmed by the unfair and deceptive practices of businesses. For instance, Teske Katz Kitzer & Rochel partner Vildan Teske testified before the Senate Judiciary Committee in December 2013, advocating for the elimination of mandatory arbitration clauses in consumer contracts. Today’s announcement from the CFPB is a huge step for expanding consumer access to justice in the marketplace.