Forced Arbitration and Financial Services

After it completes a study on the use of pre-dispute binding mandatory (or forced) arbitration, the Consumer Financial Protection Bureau has the authority to eliminate the use of arbitration clauses in consumer contracts under its purview, including in the terms of service of checking accounts, credit cards, prepaid cards, debt settlement providers, student loans, and auto financing. The below materials demonstrate that eliminating forced arbitration in consumer financial services contracts is in the public’s interest and for the protection of consumers.

Comments to the CFPB

Reports and White Papers

Righting a Financial Wrong: Debt Settlement Services, Private Student Lenders, and Auto Lenders Use Forced Arbitration to Escape Accountability When They Harm Consumers
February 27, 2014

The Consumer Financial Protection Bureau in December 2013 released preliminary results of a study called for in the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act on financial services businesses’ use of arbitration clauses in consumer contracts. The Bureau can make these industry sectors answerable for some of their shady practices by restoring consumers’ ability to enforce their rights on their own. The Bureau has the authority to write a rule to require the regulated consumer financial services industry to eliminate pre-dispute binding mandatory (or forced) arbitration from consumer transactions involving all products under its jurisdiction. Read the report.

Armed Forces and Forced Arbitration: Despite Efforts, the Fine Print Still Casts a Shadow on Financial Protections for Military Members
October 8, 2012

Predatory lending is a widespread problem affecting millions of consumers. Due to unique circumstances, the U.S. military in particular has compelling reasons for shielding its service members from unscrupulous financial products and services. The Department of Defense has observed that pre-dispute binding mandatory (or "forced") arbitration clauses, present in most lending and credit contracts, inhibit service members’ ability to resolve disputes and seek remedies for lenders’ misconduct. The most effective solution to address forced arbitration for military borrowers is a law or regulation that covers all consumers. A single rule by the Consumer Financial Protection Bureau restricting the practice in all contracts for financial services and products will restore the rights of military members and civilian consumers. Read the report.

Between a Rock and a Hard Place:Courthouse Doors Shut for Aggrieved Private Student Loan Borrowers
July 23, 2012

When potentially aggrieved private student loan borrowers seek to redress alleged harms committed by the lending industry, many borrowers discover that they are shut out of the legal process. First, many are blocked by pre-dispute binding (or forced) arbitration clauses buried in the fine print of their promissory notes or their for-profit college enrollment contracts. Second,borrowers in deep financial despair are largely unable to seek assistance in bankruptcy court because their student loan debt cannot be extinguished unless they meet an arbitrary and undefined standard. The result is that borrowers of private student loans lack a meaningful opportunity to seek relief in either civil or bankruptcy court. Read the report.

Concepcion Anniversary: Justice Denied
April 25, 2012

In the year since the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, consumers have regularly been blocked from pursuing class-action cases. Several judges have expressed frustration that the decision has forced them to stop consumer actions that are best suited to proceed as class actions. Class-action lawsuits historically have provided a means to combat illegal payday lending practices, contest poor business practices and confront discriminatory auto lending. But Concepcion has left many consumers without a means to pursue redress. Read the report.