Lawmakers ask CFPB to rein in financial industry’s use of forced arbitration

U.S. Sen. Elizabeth Warren (D-MA) and U.S. Rep. Hank Johnson (D-GA) recently led 91 legislators in urging the Consumer Financial Protection Bureau (CFPB) to protect consumers by reining in the financial industry’s use of forced arbitration.

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In a letter to the CFPB, the lawmakers asked the bureau to enact rulemaking that would limit forced arbitration in financial products and services. In September 2023, a group of consumer advocates filed a petition for Rulemaking with the CFPB asking for the bureau to prohibit the use of pre-dispute arbitration clauses in consumer contracts, in favor of clauses that would permit consumer to choose between arbitration and litigation after a dispute has arisen.

“Since the CFPB’s founding 12 years ago, the Bureau has worked tirelessly to protect American consumers, by holding repeat offenders accountable through hundreds of enforcement actions, launching efforts to save Americans billions of dollars in junk fees, and partnering with other agencies to ensure that new technologies comply with existing consumer protection laws,” the letter said. “Unfortunately, many regulations and laws intended to protect consumers continue to be undermined and rendered meaningless by provisions jammed into fine print, such as forced arbitration clauses. Though Congress has limited the use of forced arbitration for certain sectors and cases, the Bureau is best positioned to issue a rulemaking on forced arbitration for financial products and services.”

The lawmakers said corporations’ use of forced arbitration often leaves consumers with no pathway for accountability when they have been hurt by financial institutions. Studies have shown that Black, indigenous, people of color and female consumers are more likely than white men to be forced into arbitration.

“Companies hide forced arbitration clauses in the fine print, take-it-or-leave-it terms accompanying many financial products and services,” the lawmakers wrote. “These fine print traps prohibit consumers from accessing the civil justice system to resolve disputes with financial services companies. Instead, consumers are forced into a non-transparent, private system in which their position is inherently unequal relative to the company. In such an unfair playing field, with no ability to appeal decisions, it is no surprise that consumers rarely prevail over financial services providers.”