Consumer Financial Protection Bureau Looks to Protect Consumers' Rights to Access the Court System

Congress is currently considering proposed legislation from the Consumer Financial Protection Bureau (CFPB) to prohibit companies from denying groups of consumers the option of filing civil lawsuits when they are treated unfairly. The proposal concerns the practice of mandatory arbitration clauses used by many companies and banking institutions to keep lawsuits and class actions out of court. The new law was recently passed by the House of Representatives and now stands before the Senate.

Mandatory arbitration clauses force consumers who have been wronged or injured into individual arbitration, a form of alternative dispute resolution conducted outside of the civil justice system. Private arbitration is favored by many companies because it weakens consumers’ leverage and unfairly favors businesses over consumers. Arbitration also keeps proceedings behind closed doors and out of the public court system, which deprives American citizens from accessing information that could protect their safety and interests and influence their choices as consumers. Not surprisingly, corporations favor the use of class actions when they are suing for misconduct against them.

In a recent opinion piece published by The New York Times, CFPB Director Richard Cordray defended the agency’s stance against mandatory arbitration and addressed claims from opponents. According to Cordray, group lawsuits often blocked by arbitration clauses succeed in allowing more consumers and victims to get back more money. Individual arbitration cases, on the other hand, are pursued by substantially less people, and result in far less when it comes to recoveries.

The disparity between the number of consumers and amount of payouts by companies is directly correlated to the nature of arbitration, which is a process very few people actually pursue, and often only when significant sums are on the line. Group lawsuits typically seek small recoveries for many people, which, when attempted alone, would not be worth the average consumer’s time or money.

As Cordray points out, arbitration clauses enable a bank that illegally overcharges millions of customers to block them from filing lawsuits together. This does not result in millions of individual claims, but rather close to none, allowing the banks to keep millions of dollars in ill-gotten gains. From this perspective, it becomes clear why companies favor mandatory arbitration.

By ending mandatory arbitration clauses, consumers not only have options and opportunity to recover their money, they benefit from public information available in civil court proceedings. This includes information that can benefit public safety and halt and deter harmful behavior. When banks were sued by groups of consumers and ordered to pay over $1 billion for illegally reordering debits and charging more overdraft fees, for example, most banks discontinued the practice. Mandatory arbitration would have blocked these group cases, allowing banks to continue to gouge its customers without legal consequence.

Mandatory arbitration clauses have become a significant concern for consumer and victim advocates. While corporations and even the current administration look to strengthen the power of corporate entities, it becomes the American citizens’ responsibility to speak out against practices and efforts that curtail their rights. This includes the current presidential administration’s latest effort to overturn a ban that would prevent nursing homes from including mandatory arbitration clauses in the contracts of residents, allowing facilities to block residents’ ability to sue over abuse and neglect.

At Spangenberg Shibley & Liber LLP, our Cleveland-based attorneys are passionate about leveraging the power of the civil justice system to protect the injured and the wronged, and to correct injustices and dangerous practices that threaten everyday Americans. Our work representing clients in class-action lawsuits, defective product suits, and personal injury cases enables us to help them level the playing field with massive corporations. Mandatory arbitration clauses directly target the equal-footing civil lawsuits provide consumers and victims, and succeed only in prioritizing profits over people.

If you have questions about arbitration, or wish to discuss a potential case with a member of our team, contact us for a FREE consultation.


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