Forced Arbitration Clauses Could Be Severely Limited by New CFPB Rule

Forced Arbitration Clauses Could Be Severely Limited by New CFPB RuleFinancial institutions and large corporations have been relying on forced arbitration clauses for decades to protect them from significant lawsuit payouts and legal backlash for wrongdoing. A forced arbitration clause, summarized, states that a consumer or patron cannot actually file a lawsuit against the company or bank to pursue compensation for violations and discrepancies. Instead, the consumer has to enter a private arbitration session with company representatives and agree not to go further with the matter.

Forced arbitration clauses were advertised by companies and banks as ways to expedite the discrepancy-compensation process for the benefit of both courts and the public. In reality, they were often exploited by certain companies to try to get away with illegal business practices and generally save themselves monumental amounts of money when a consumer had a valid complaint. Since a court could not oversee the private arbitration and there were no other options beyond them, consumers were frequently pigeonholed into accepting whatever the company put on the table, which was almost guaranteed to be miniscule compared to what they actually deserved.

Federal Intervention Could Stop Forced Arbitration

To combat the influence of forced arbitration clauses, the Consumer Financial Protection Bureau (CFPB) has drafted a new rule that would bar the use of any forced arbitration clause in financial service contracts that also had a built-in class action ban. The CFPB reached the decision to draft this regulation after a multiyear study of 400+ private class actions and the impact they made on consumers. Comparing similar lawsuits hampered by forced arbitration, the Bureau determined that time and time again, consumers lost significantly when typical legal procedures were excluded due to a clause dropped into the middle of a massive consumer agreement.

Today, the CFPB rule is hanging in the balance of Congress. Many fear that lawmakers from either side of the political aisle are lobbied and placed in the pocket of big banks like Wells Fargo, which was scandalized by a forced arbitration clause case in both 2014 and 2015. If Congressional members indeed stand to gain by siding with financial institutions, then it might be a good prediction to say that the CFPB rule will be erased soon by the Congressional Review Act (CRA). The CRA permits Congress to undo a newly imposed federal regulation and ban the issuance of any ruling that is dramatically similar in the future.
For an interesting opinion piece on this ongoing matter, The Hill recently posted such an article, which can be read in full by clicking here. At Christian & Christian, our Greenville personal injury attorneys are acutely interested in how the CFPB ruling will play out. As advocates for the rights of the people, we do not believe that forced arbitration clauses create a fair legal process for consumers to pursue compensation, and do indeed favor big banks and corporations. If you have more questions about arbitration, or need help with an injury claim, feel free to contact us and schedule a free consultation.