Washington, DC – Buried in the fine print of millions of contracts are forced arbitration clauses, which deprive consumers of their statutory and constitutional right to a day in court, according to a study released today by the Consumer Financial Protection Bureau (CFPB). Forced arbitration clauses immunize large corporations from responsibility for their conduct and require consumers to give up their basic rights if they want to use financial products that we all rely on everyday like credit cards, bank accounts, car financing.
Allowing companies to force consumers into an often biased, secretive, and lawless system on an individual basis deprives millions of people of their right to go to court. Consumers must plead their cases to a private arbitrator who does not need to follow the law. The arbitrator’s decision is almost impossible to appeal, and any evidence of corporate wrongdoing conveniently remains secret. Forced arbitration clauses give corporate wrongdoers immunity from justice if they commit fraud, violate consumer protection laws, or fail to do what they promised.
The CFPB arbitration study shows that an ordinary consumer has absolutely no idea he or she is giving up constitutional, statutory, and common law rights and surrendering his or her day in court. The study demonstrates that forced arbitration clauses, and specifically those that prohibit class actions, are becoming standard business practice in contracts for financial products like payday loans, credit cards, prepaid cards and checking accounts. The study confirms that the main impact of forced arbitration is to stop injured consumers from getting any relief at all.
Companies now use forced arbitration clauses and class action bans to eliminate the ability of consumers to band together, which in many circumstances is the only means to vindicate their rights. State attorneys general and federal government officials have confirmed that class actions provide real and meaningful benefit to harmed consumers and can result in reforming bad business practices that are in the public interest and complement public enforcement work.
However, the mere existence of a forced arbitration clause with a class-action ban in a contract permits businesses to continue to engage in unfair and deceptive practices and ignore consumer protection laws without any accountability to consumers.
We urge the CFPB to act quickly to ban forced arbitration clauses in contracts for financial products and services.
What is forced arbitration? Forced arbitration clauses are buried in the fine print of employment, cell phone, credit card, retirement account, home building, and nursing home contracts. Just by taking a job or buying a product or service, individuals are forced to give up their right to go to court if they are harmed by a company. Because the private system of forced arbitration benefits companies — and disadvantages consumers and employees — more and more industries are using forced arbitration to evade accountability. In arbitration, there is no publicly accountable judge, jury, or right to an appeal. The arbitrators do not have to follow the facts or the law, and there is no public review of decisions to ensure the arbitrator got it right. Moreover, contracts typically name the arbitration firm that must be used—the one preferred by the company. Arbitrators have an incentive to favor the company, which can give them repeat business or not.