Senators Call On CFPB To Quickly Finalize A Rule On Arbitration Clauses In Financial Services

The Consumer Financial Protection Bureau is facing calls from close to 40 U.S. Senate Democrats, who want the government agency to finalize its proposed rule having to do with how banks and financial companies use arbitration clauses for contracts with consumers.

The Senators, led by Minority Leader Harry Reid, D-Nev., Al Franken, D-Minn., Patrick Leahy, D-Vt., and Sherrod Brown, D-Ohio, contend the  arbitration clause prevents consumers from turning to the courts in a dispute with a bank or financial institution and stops them from seeking legal recourse that could be impactful. The proposed rule by the Consumer Financial Protection Bureau was issued in May but the Senators want the government agency to move quickly to put it on the books.

“Every day, Americans across the country are forced to sign away their constitutional right to access the courts as a condition of purchasing common products and services like credit cards, checking accounts and private student loans,” the senators said in their letter. “To restore Americans’ access to justice and hold financial institutions accountable, we strongly support the CFPB’s proposal.”

With an arbitration clause, consumers have to rely on arbitration if they have a dispute that can’t be reconciled. That means that even if they were wronged badly they can’t turn to a court for help. Critics of the arbitration clause contend it rigs the system so that the large companies get favorable rulings and there is no means to appeal. The senators claim the clause often includes a class action waiver, which prevents a group of customers from suing.

The CFPB has reportedly research these clauses for close to four years and in a study found these type of clauses are very common in the consumer financial sector, affecting tens of millions of people. The CFPB said in its proposal it would move against bans on class action lawsuits.