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What We’re Reading – "CFPB Moves Against Forced Arbitration in Financial Industry"

What We're Reading - "CFPB Moved Against Forced Arbitration in Financial Industry"

Consumer protection advocates have long railed against “forced arbitration” clauses, which are binding agreements forcing consumers to waive their right to take part in group legal actions, such as class action lawsuits, in order to attain employment with a company, or to make use of its products or services.

Opponents of forced arbitration had reason to cheer recently, as the Consumer Financial Protection Bureau “proposed new rules that would allow class-action lawsuits by aggrieved customers of financial services companies,” as reported by the Minneapolis StarTribune.

The new rule, proposed earlier in May, would prohibit banks and other businesses that issue credit cards, make loans, provide checking, or offer additional financial services from making customers sign agreements that take away their right to participate in group legal actions.

As the StarTribune explains:


“Hundreds of millions of consumers are affected by so-called forced arbitration clauses that allow companies to compel customers to submit disputes about alleged wrongdoing to binding decisions made by private individuals. The clauses do not preclude individual small-claims court actions. But they usually block other kinds of lawsuits including class actions.”

In its explanation of the new rules, the CFPB stated that class action suits let “companies know they can be called to account for their misconduct,” making these institutions “less likely to engage in unlawful practices that can harm consumers.”

Since it was proposed, the rules have come under fire from proponents of arbitration, including trade groups and members of Congress.

As Sylvan Lane reports for Congressional newspaper The Hill:

“The rule is based on an 2015 CFPB study, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, that found consumers reaped much smaller rewards from arbitration than litigation.

But Republicans and arbitration defenders on Wednesday said the study’s findings didn’t support the CFPB rule and failed to meet Dodd-Frank’s standards for action. […]

CFPB “failed to articulate a rational connection,” said [Texas Representative Randy] Neugebauer, who said the proposed rule was a “clear error in judgement” that would steal retribution away from low-income consumers.

The proposed rule does have plenty of government support, as well, The Hill reports.

“Those are the words the corporations use to promote the arbitration fine print buried at the end of contracts that consumers sign,” said Rep. Lacy Clay (D-Mo.), the subcommittee’s ranking Democrat. “We should be using words like ‘unfair,’ ‘biased,’ ‘expensive,’ ‘opaque’ and ‘discouraging.’ ”

“The choice is not between arbitration and litigation,” added Rep. Brad Sherman (D-Calif.). “The choice is between litigation as a class-action and absolutely no remedy.”

Whatever the outcome of the proposed restrictions, the move against forced arbitration in the financial industry could send shockwaves through the industries it touches – including the vacation, travel, and timeshare industries. For more on the reaction to the proposed rule change, we encourage you to read the full stories at the StarTribune and The Hill.

Led by Attorney Michael D. Finn with 50 years of experience, the Finn Law Group is a consumer protection firm specializing in timeshare law. Our lawyers understand vacation ownership as well as the many pitfalls of the secondary market of timeshare resales. If you feel you have been victimized by a timeshare company, contact our offices for a free consultation. Know your rights as a consumer and don’t hesitate to drop us a line with any questions or concerns.


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