The Consumer Financial Protection Bureau is considering proposing rules that would ban financial companies from using “free pass” arbitration clauses to block consumers from suing in groups to obtain relief.
Buried in many contracts for consumer financial products like credit cards and bank accounts, most of the clauses deny consumers the right to participate in group lawsuits against companies.
“Consumers should not be asked to sign away their legal rights when they open a bank account or credit card,” said CFPB Director Richard Cordray, the agency said in an Oct. 7 press release.
Arbitration clauses typically state that either the company or the consumer can require disputes about that product to be resolved by privately appointed arbitrators, rather than through the court system. Where such a clause exists, either side can generally block lawsuits from proceeding in court. These clauses also typically bar consumers from bringing group claims through the arbitration process.
The clauses are also gaining popularity among employers, who condition employment on them, sometimes in conjunction with class action waivers. The clauses and waivers are sometimes invalidated in court, though.
The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the use of arbitration clauses in consumer financial markets. Released earlier this year, the study showed that very few consumers individually seek relief through arbitration or the federal courts.
More than 75 percent of consumers surveyed in the credit card market did not know whether they were subject to an arbitration clause in their contract, according to the study. Fewer than 7 percent of those consumers covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
The bureau published an outline of the proposals as a first step in the process of a potential rulemaking on this issue. They would:
