The Oregon Attorney General, Ellen Rosenblum, and 15 other attorneys general have sent a letter to the Consumer Financial Protection Bureau asking the federal government to adopt rules that protect consumers from mandatory arbitration clauses in important contracts.
The letter points out that the mandatory arbitration clauses are inserted by financial institutions into critical contracts for essential financial products, such as credit card, payday loan and checking account agreements. The language either has the effect of prohibiting the consumer from pursuing a claim against the financial institution in court or makes it prohibitively expensive by restricting the consumers’ rights to form a class-action lawsuit. Also, unlike court proceedings, arbitration matters are usually decided in secret and the decisions are not publicized.
As the chief consumer protectors of their states, the attorneys general asked CFPB Director Richard Cordray to protect consumers’ fundamental rights to assert their claims in court in their letter.
“The need for regulations to protect the public interest has never been so great,” the attorneys general wrote. “Over the past decade, judicial decisions and business practices have diminished consumers’ rights and bargaining power with respect to contracts for financial services. ”
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to conduct extensive research before determining whether mandatory arbitration clauses are harmful to consumers before issuing any regulations.
The letter said that financial institutions tuck the arbitration into the fine print of contracts and consumers often are not even aware of what they are agreeing to. Financial institutions often make it mandatory that consumers agree to submit to the arbitration process before opening a checking account or issuing a credit card, so consumers often have no real way to negotiate or otherwise insist on protecting their rights.
“Mandatory pre-dispute arbitration is procedurally unfair to consumers, and jeopardizes one of the fundamental rights of Americans; the right to be heard and seek judicial redress for our claims,” the attorneys general wrote to Cordray, himself a former Ohio Attorney General. “These contractual requirements are neither voluntary nor readily understandable for most consumers. Often consumers do not recognize the significance of these provisions, if they are aware of them at all. “
In addition to Oregon, the following states also signed onto the letter Delaware, Massachusetts, Kentucky, California, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, New Mexico, New York, Rhode Island, Vermont and Washington.
A copy of the letter is available here.