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The Consumer Financial Protection Bureau (CFPB) has announced that it is seeking comments on proposed rules to prohibit mandatory arbitration clauses that the regulator claims would “deny groups of consumers their day in court.”
The announcement follows a CFPB report released in March that asserted few consumers bring individual actions against their financial service providers either in court or in arbitration. The agency’s report concluded that class actions provide a “more effective means for consumers to challenge problematic practices by these companies.”
The CFPB proposal would prohibit companies from putting mandatory arbitration clauses in new contracts that prevent class action lawsuits, although companies would still be able to include arbitration clauses in their contracts. However, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The proposal would provide the specific language that companies must use.
“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”