May 21, 2015

Wyden & Broad Coalition of Democratic Lawmakers Fight to Outlaw Unfair Consumer Contracts

Sen. Wyden, Franken, Rep. Hank Johnson, More Than 50 Other Members of Congress Call on Top Consumer Agency to Eliminate Forced Arbitration Agreements in Financial Services Industry

WASHINGTON, D.C.—Today, U.S. Sen. Ron Wyden (D-Ore.) along with Sen. Al Franken (D-Minn.), Rep. Hank Johnson (D-Ga.) and a broad coalition of more than 50 members of Congress continued to fight to protect the rights of consumers in Oregon and across the country who are being hurt by forced arbitration contracts in the financial services industry.   

In a letter to the Consumer Financial Protection Bureau (CFPB)—the top consumer agency in the country—the lawmakers called on the CFPB to swiftly issue new rules that will eliminate the use of forced arbitration clauses in consumer financial service contracts—things like credit cards, checking accounts, payday loans, private student loans, and cell phone contracts. Forced arbitration clauses often prevent Oregonians and everyday consumers from taking companies to court for legal relief, and instead put victims of wrongdoing at a disadvantage.

“These clauses force individuals into private binding arbitration as a condition of buying a product or service, and are designed to stack the deck against consumers and ensure that the final outcome of forced arbitration is unreviewable by courts,” wrote the lawmakers. “Forced arbitration clauses—often buried deep within the fine print of financial products and service contracts—harm American consumers by depriving them of their day in court even when companies have violated the law.”

In March, the CFPB released a study showing that forced arbitration agreements have prevented consumers from finding relief when they are wronged. More than 100 groups have also called on the CFPB to issue new rules.

In addition to Wyden, signers of the letter included Sens. Al Franken (D-Minn.), Patrick Leahy (D-Vt.), Sherrod Brown (D-Ohio), Richard Blumenthal (D-Conn.), Dick Durbin (D-Ill.), Bernard Sanders (I-Vt.), Jack Reed (D-R.I.), Robert Menendez (D-N.J.), Sheldon Whitehouse (D-R.I.), Tom Udall (D-N. Mex.), Jeff Merkley (D-Ore.), Tammy Baldwin (D-Wis.), Mazie Hirono (D-Hawaii), Elizabeth Warren (D-Mass.), Heidi Heitkamp (D-N. Dak.), and Ed Markey (D-Mass.). In the House of Representatives, 41 members of Congress signed the letter.

Wyden has long fought for greater consumer rights – whether that be in finance, Internet policy or higher education. He recently cosponsored the Arbitration Fairness Act—to restore the rights of consumers, workers, and small businesses to seek justice through the courts. Wyden was a cosponsor of the Act in the 111th, 112th and 113th Congresses.

The text of the letter is below.

 

May 21, 2015

 

The Honorable Richard Cordray

Director

Consumer Financial Protection Bureau

1700 G Street NW,

Washington, DC 20552

 

Dear Director Cordray:

We write to commend the Consumer Financial Protection Bureau (CFPB) for completing its study on the use of mandatory, pre-dispute arbitration (“forced arbitration”) in consumer financial products or services contracts, and to urge the CFPB swiftly to undertake a rulemaking to eliminate the use of forced arbitration clauses in these contracts.                                                                                      

These clauses force individuals into private binding arbitration as a condition of buying a product or service, and are designed to stack the deck against consumers and ensure that the final outcome of forced arbitration is unreviewable by courts. Forced arbitration clauses—often buried deep within the fine print of financial products and service contracts—harm American consumers by depriving them of their day in court even when companies have violated the law. 

Recognizing the potential harm to the rights of consumers, workers, and small business owners, Congress has taken several actions to limit the harmful effects of forced arbitration agreements.  To date, Congress has passed a series of laws to limit the abusive use of forced arbitration clauses in mortgage loans, transactions involving auto dealers and automobile and truck manufacturers; livestock and poultry growers; military members with respect to payday loans, vehicle title loans, and tax refund anticipation loans; employees of government defense contractors with respect to Title VII and sexual assault tort claims, and whistleblower claims under the Sarbanes-Oxley Act of 2002. Congress directed the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to study forced arbitration clauses and gave the CFPB express authority to issue regulations to prohibit or limit these clauses in consumer financial contracts.

The CFPB’s comprehensive report underscores the devastating effects of forced arbitration on tens of millions of consumers. The study found not only that more than three in four consumers were unaware of forced arbitration clauses in their contracts, but also that consumers rarely use arbitration on an individualized basis, especially for small-dollar claims, and that there is no evidence that forced arbitration lowers costs for consumers. The findings also demonstrate that forced arbitration clauses often prevent consumers from banding together through class actions, even though it is clear from the study that collective action more effectively compensates individuals and deters abusive corporate practices than arbitration on an individual basis. Indeed, while class actions resulted in over $200 million in average yearly settlements for consumers, disputes settled through arbitration netted just over $350,000 in damages and debt forbearance for consumers over a two-year period.

In total, the study conducted by CFPB at Congress’s request roundly confirms that individuals unknowingly sign away their rights through forced arbitration agreements, which do not reduce consumer costs for financial services.  Moreover, forced arbitration shields corporations from liability for abusive, anti-consumer practices, encouraging even more unscrupulous business conduct at the expense of individuals and law abiding businesses.

Based on this substantial bedrock of evidence, we urge the CFPB to move forward quickly to use its authority under the Dodd-Frank Act to issue strong rules to prohibit the use of forced arbitration clauses in financial contracts and give consumers a meaningful choice after disputes arise.

Sincerely,

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