The Consumer Financial Protection Bureau is examining so-called arbitration clauses in terms and conditions for financial products. Last week, the head of the bureau, Richard Cordray, sent the strongest signal yet that the regulatory whip soon will come down on banks and other lenders denying customers their day in court if they feel mistreated.
“By inserting an arbitration clause into their contracts, companies can sidestep the legal system, avoid big refunds and continue to pursue profitable practices that may violate the law and harm consumers,” he said in a speech to the American Constitution Society.
“Companies should not be able to place themselves above the law and evade public accountability simply by inserting the magic word ‘arbitration’ in a document and dictating the favorable consequences,” Cordray said. “Consumers should be able to join together to assert and vindicate their established legal rights.”
Forced arbitration has become a routine part of many companies’ dealings with customers, thanks to the U.S. Supreme Court, which has issued several rulings in recent years upholding the practice.But under the financial reform law enacted in 2010, the Consumer Financial Protection Bureau was empowered to study forced arbitration by financial services firms and to issue new regulations if deemed necessary. It now seems certain that rule changes are in the works.This would affect banks, credit card issuers and other firms falling under the agency’s jurisdiction.
It wouldn’t affect non-financial businesses that also inflict arbitration clauses on customers, such as phone companies, pay-TV providers, rental car firms and others.That would take an act of Congress.
Lawmakers recently introduced a bill in the U.S. Senate called the Restoring Statutory Rights and Interests of the States Act. It would forbid companies from making customers waive their right to sue or join a class-action lawsuit.
Source: Government may soon begin putting an end to forced arbitration clauses – LA Times