A proposed rule by the Consumer Financial Protection Bureau is taking aim at mandatory arbitration clauses often found in the fine print of contracts between consumers and corporations. The CFPB is hoping to ban these clauses and give consumers more power when it comes to seeking justice for violations of their rights.
"The CFPB is taking aim at mandatory arbitration clauses."
The clauses are often buried in service contracts employed by financial institutions covering credit cards, bank accounts and loans. These clauses mandate that consumers engage in binding private arbitration – which often finds in favor of corporate interests over consumer rights – and bars them from banding together in class action suits against these institutions.
"Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong," CFPB Director Richard Cordray said in a statement quoted by The Hill. "Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them."
In addition to banning mandatory arbitration clauses in financial company outright, The Hill reports that the rule would compel other companies with these clauses to submit "all claims, awards and certain related materials" that are granted in arbitration to the CFPB for further scrutiny. This grants more power and oversight to the CFPB, whose role has traditionally been in investigating wrongdoing after it has occurred.
"It is the single, most impactful thing the CFPB can do because the arbitration rule will apply to multiple, whole categories of industries," Jennifer Lee, a partner at Dorsey & Whitney LLP and a former enforcement lawyer at the CFPB, said to The Wall Street Journal.
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