A group of 16 state attorneys general recently wrote Richard Cordray, head of the Consumer Financial Protection Bureau, a letter encouraging the CFPB to take immediate action to crack down on pre-dispute mandatory arbitration clauses in consumer agreements for financial products or services. Specifically, while acknowledging that additional actions may be necessary to “fully address the problem,” the AGs said that the “time is ripe” for the CFPB to exercise its statutory authority to regulate arbitration clauses to protect the “fundamental right of consumers to assert their claims in court.”
According to the letter, financial institutions often insert mandatory arbitration clauses into contracts for financial products such as credit cards, payday loans, and checking accounts. The AGs claim that the provisions effectively prohibit consumers from pursuing a claim against financial institutions in court or make it prohibitively expensive for consumers to file a class-action lawsuit.
“The need for regulations to protect the public interest has never been so great,” the AGs 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 AGs, as the chief consumer protectors in their respective states, encouraged the CFPB to use its statutorily prescribed powers to protect the public interest “by imposing prohibitions, conditions, or limitations on the use of pre-dispute arbitration clauses in agreements for consumer financial products or services.”
The letter comes on the heels of the CFPB’s completion of a preliminary two-year study of the use of pre-dispute arbitration clauses in contracts for financial products and services, and clearance for the CFPB to conduct a nationwide telephone survey of credit card users regarding their knowledge of arbitration clauses. In counterpoint to the ongoing study by the CFPB of arbitration issues, the AGs called upon the CFPB to take immediate action, stating that the “time is ripe to do so.”
As noted here and here, there have been numerous instances of coordinated, aggressive efforts by AGs and the CFPB to reform the financial services industry since the passage of the Dodd-Frank Act. If the CFPB takes up the call by the AGs to take immediate action, this letter will become the latest fingerprint example of the continuing cooperation between AGs and the CFPB.
Follow the Consumer Financial Services Law Monitor for further updates on this and other consumer financial protection issues.