First Posted: 3/13/2015
In 2008, an Ohio Court of Appeals ruled against my clients, who were shut out of the courthouse because of a forced arbitration clause in their contract with a car dealership and its financing company. They were not able to have a court hear their allegations of fraud and violations of consumer protection statutes that they brought against the companies, and one of the consumers hadn’t even signed the arbitration clause in question!
Instead of being able to exercise their constitutional right to have their case heard by a jury of their peers, my clients were told their only option was very expensive private arbitration, where justice is bought and sold because of the undeniable incentive arbitration firms have to keep repeat customers happy and decide in the favor of the company that hires them.
It’s unconscionable to continue to force consumers – most of whom aren’t comfortable with legalese and don’t have time to wade through pages of fine print – to sign away the right to their day in court.
The Consumer Financial Protection Bureau, the watchdog government agency tasked with looking out for American consumers, is poised to write a rule that could eliminate forced arbitration in consumer financial products and services such as credit cards, payday lending, banking accounts, student loans and all of the commonplace non-negotiable contracts that we all regularly sign.
I’m confident that the CFPB’s director, Ohioan Rich Cordray, will ensure justice will be served for the millions of consumers who have been harmed by unscrupulous financial service providers. In his March 10 speech announcing the completion of the agency’s study on forced arbitration, Cordray outlined the various ways in which forced arbitration has already been banned, such as in lending contracts to military personnel and in housing lending contracts.
Cordray also outlined the rigorous study process the CFPB went through, as required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. He also explained the ways that the study was thoroughly vetted by stakeholders and the public.
Through its study of forced arbitration, the agency found that tens of millions of consumers are bound by forced arbitration clauses. And, when these clauses were examined under the CFPB’s microscope, the data clearly proved that forced arbitration harms consumers.
One of the most telling statistics in the CFPB’s study is that nine in 10 forced arbitration clauses contained bans on consumers joining together in class-action suits, the only economical way to sue a company for small-dollar harms. All of that nickel and diming of consumers through overcharges and hidden fees adds up quickly, lining the pockets of Wall Street. Without class actions to hold companies accountable, we’ll continue to see these systematic scams and rip-offs continue.
I was pleased to see that one of our U.S. senators, Sherrod Brown (D-Ohio), came out in favor of the CFPB writing a rule to eliminate the use of forced arbitration. He said, “Only when consumers are faced with a serious financial dispute do they realize that they are prohibited from filing individual and class-action lawsuits, often depriving them of a fair settlement. The Consumer Financial Protection Bureau must protect consumer interests and implement a strong rule banning mandatory arbitration.”
I hope Rich Cordray can show the same kind of leadership as Sen. Brown and stand strong in the face of what’s sure to be intense backlash from the business lobby. I think he will come through for Ohio and the nation, though. As he said at the CFPB field hearing to release the study’s results, “Strong consumer protection is an asset to honest businesses because it ensures that everyone is playing by the same rules, which supports fair competition and positive treatment of consumers.”
I couldn’t have said it better. If only my clients in the car dealership case had received that type of positive treatment, they might have seen some justice. But, here’s to learning from society’s mistakes and providing better protections for consumers.
