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Spangenberg Shibley & Liber LLP | Jan 3, 2018

Big Banks Score Win After Senate Rolls Back Rule Barring Forced Arbitration

Categories: News

In October, the U.S. Senate voted to overturn a rule published by the Consumer Financial Protection Bureau (CFPB) earlier this year that bans financial institutions from including forced arbitration clauses in consumer contracts. The rule was aimed at blocking big banks, credit card companies, and other financial organizations from requiring consumers to resolve their disputes though arbitration without the opportunity to band together and pursue class-action lawsuits. President Trump signed legislation to repeal the CFPB roughly a week after it passed the Senate floor.

The recent repeal of the CFPB rule is just one example of the legal battles surrounding consumer rights and the watchdog agency, which was created under the Dodd-Frank Wall Street reform act to protect consumer interests against improper and misleading practices of financial services. Unfortunately, the repeal is a major victory for big banks.

As we have discussed in previous blogs, mandatory arbitration is a bad deal for consumers, as it unfairly tips the scales in favor of big banks and other corporations. Here are a few reasons why:

  • According to statistics from the CFPB, far fewer consumers seek justice and relief from financial service providers through arbitration than those who form class actions. They also recover far less compensation (roughly $400,000 per year) than claimants in class action litigation (which return over $220 million to American consumers).
  • Private arbitration puts victims at a disadvantage, and prevents their claims from being heard by juries. Instead, a private arbitrator has sole discretion over disputes, and their fees are often paid by the corporation involved.
  • Unlike civil trials, private arbitration keeps claims about improper practices away from the public, which means corporations are able to continue patterns of harmful practices at the expense of consumers, and that new victims face difficulties in exposing those patterns.

The numbers alone make it clear why big banks and other financial firms back mandatory arbitration, and highlights their prioritization of profits over people. These practices aren’t just limited to the financial industry either – nursing homes have also been widely criticized for having residents sign contracts that contain forced arbitration clauses, often without their knowledge. This is one important reason why anyone choosing a nursing home should always read the fine print.

While consumer advocates have made great strides in protecting and furthering the rights of everyday Americans, the flood of money into politics all too often results in legislation and rollbacks that favor big businesses – the same big businesses that continually prove that they can’t be expected to do right by consumers unless they are made to do so, either by regulations or in the courtroom.

Over the 70+ years our firm has been advocating for the injured and the wronged, we have seen the civil justice system evolve tremendously. Throughout that time, we have remained committed to leveraging the power of civil legal actions – including class action lawsuits and personal injury lawsuits – to level the playing field between victims of injustice and negligence and the corporate powerhouses they face off against. Although the recent rollback of the CFPB’s mandatory arbitration clause is a blow to consumers everywhere, we continue to support efforts that raise awareness and educate the public about their rights and how they can get involved. We also make ourselves readily available to clients across the state of Ohio when they wish to seek justice through civil lawsuits.