On Thursday, May 21, 2015, fifty-eight Democratic members of Congress pushed the Consumer Financial Protection Bureau (“CFPB”) to prohibit mandatory arbitration clauses in consumer financial contracts. The clauses, which Democrats argue unfairly deprive consumers of their day in court, are often included as standard language in contracts for regularly utilized products such as credit cards and banking accounts.
Companies that routinely employ mandatory arbitration clauses argue that it keeps costs to consumers down, by lowering the prevalence of costly litigation. However, in a report issued by the CFPB in March, the agency found that while arbitrators awarded less than $500,000 total in damages and debt forbearance in 2010 and 2011, over a five-year period consumers involved in class action settlements recovered approximately $2.7 billion.
A number of consumer advocacy groups including Public Citizen, National Association of Consumer Advocates, Americans for Financial Reform and the National Consumer Law Center issued statements in support of the Democrats’ request, and in doing so reiterated their belief that mandatory arbitration clauses harm consumers. Statements from representatives of the consumer financial industry have not yet been issued.
The Democrats letter comes on the heels of a bill introduced by Sen. Al Franken (D-Minn.) and Rep. Hank Johnson (D-Ga) seeking to ban mandatory arbitration clauses for antitrust, employment, consumer, and civil rights cases.
See the full text of the Democrat’s letter here.