CFPB’s New Consumer Protection: Restrict Forced Arbitration

By Renato Rocha, Policy Analyst, Economic Policy, UnidosUS

The same week we announced our new name—UnidosUS—the Consumer Financial Protection Bureau (CFPB) issued a final rule that prohibits financial contracts from having forced arbitration clauses with class action bans. In effect, the new rule restores the right of consumers to come together in court by prohibiting class action bans, giving consumers a way to unite and hold corporations accountable for systemic misconduct.

Forced arbitration is a rigged system. Often, forced arbitration requires consumers to take a dispute to a private arbitrator chosen by the company, rather than exercise their right to have their complaint heard before a court. Given the association between the company and the arbitrator, forced arbitration causes considerable unfairness to consumers.

Fortunately for consumers everywhere, Dodd-Frank authorized the CFPB to conduct a comprehensive study of arbitration clauses and gave the agency the power to issue protections in accordance with the study’s findings. In 2015, the CFPB published their findings, which showed that a significant portion of financial products and services include forced arbitration clauses. The CFPB study found that 50% of outstanding credit card loans, 44% of insured deposits (checking accounts), and nearly all private student loans are subject to arbitration clauses. Nearly all (85% – 100%) the arbitration clauses studied included provisions that prevented consumers from pursuing class actions.

Given the study’s findings, the CFPB’s new rule prohibits banks and lenders that engage in unfair and deceptive practices from stripping consumers of their right to hold them accountable in class action lawsuits. It is no surprise that the rule has been met with widespread support by consumer advocates. The Military Coalition, representing 5.5 million service members, as well as 310 civil rights, faith, labor, and consumer groups support the CFPB arbitration rule.

This new protection will go a long way to supporting all consumers, especially Latinos, who otherwise cannot afford to take legal action on their own. CFPB’s new arbitration rule is very much in line with Latino views on consumer protection. Our recent study found that Latinos voters not only believe financial companies are still reckless (75%), but that consumers need more protection (81%). These sentiments were shared among Latinos regardless of their political affiliation, as more than 66% of Democrats, Independents, and Republicans shared these views.

As in the spirit of our new name, UnidosUS, consumers are stronger together. Our President and CEO Janet Murguía said, “In unity there is strength, and in strength there is power,” of our new name—and the same can be said about CFPB’s new arbitration rule. Thanks to CFPB’s new protection, fundamental consumer rights will be restored and systemic public harms caused by forced arbitration will be addressed by allowing consumers to band together to curb predatory practices in the financial marketplace. This new consumer protection makes our financial system stronger and safer for Latinos, and all consumers everywhere.