Director Cordray of the CFPB recently spoke to the American Constitution Society regarding arbitration clauses. The CFPB conducted a comprehensive study of consumer finance arbitration and found that arbitration clauses are pervasive in consumer finance, restrict consumers’ relief in disputes with financial service providers and that consumer awareness regarding arbitration is low.
In response to the findings, the Bureau is considering prohibiting the use of arbitration clauses to block class actions. Cordray said companies could still have an arbitration clause, but they would have to say explicitly that it does not apply to cases brought on behalf of a class. The CFPB is also considering whether to require companies send data regarding initial claims and awards in consumer financial arbitration disputes to increase transparency.
The CFPB believes these steps would give consumers the opportunity to vindicate their legal rights, deter wrongdoing on a broader scale and bring arbitration of individual disputes “into the sunlight of public scrutiny.”
The Bureau’s next step will be to publish a notice of proposed rule-making and seek public comment from all stakeholders prior to finalizing a rule.