The Consumer Financial Protection Bureau released its highly anticipated proposed rule to prohibit banks and other financial service providers from banning its customers from filing class action lawsuits to address alleged wrongdoing. The proposal, found here: (http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_Rulemaking.pdf) is designed to limit the use of foreced arbitration, to prevent banks and other finance companies from “sidestepping the legal system” and to create accountability when consumers’ interests are violated.
This is not the only proposal in the works to address the surge in use of forced arbitration clauses. A new bill in Congress, the Justice for Telecommunications Consumers Act of 2016, sponsored by Senators Blumenthal and Franken, if passed, would prevent telecom providers from taking away their customers’ right to sue. Every major mobile carrier includes a one-sided arbitration clause in the contract consumers are forced either to sign or “click through” when they sign up for service. Just a few weeks ago, a court in California dismissed a case brought against AT&T for throttling customers’ data speeds after they reached some arbitrarily set limit, even though the provider advertised that its plan included unlimited data. The case was dismissed because of the presence of an arbitration clause.
Another bill, seeking more sweeping changes, is also being brought to the Senate. The Restoring Statutory Rights and Interests of the States Act of 2016, (S. 2506), would affirm consumers’ rights to bring actions against vendors when they violate state or federal law, without regard to the presence of an arbitration clause. In addition, the Department of Education proposed a rule change that would eliminate the use of arbitration clauses by for-profit colleges.
These changes are necessary. Studies show that consumers fare quite poorly when forced to arbitrate their individual claims. In a study performed by the Consumer Financial Protection Bureau, the agency found that approximately 600 consumer arbitrations were conducted per year between 2010 and 2012, and the total amount awarded by arbitrators in all these proceedings was $175,000 in damages and less than $190,000 in debt relief. In stark contrast, approximately $2.7 billion in class action settlements were achieved for consumers using the class action process over a five-year period, benefiting 32 million consumers.
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If you have any questions about forced arbitration, or consumer class actions, please contact Goldman Scarlato & Penny attorneys Paul Scarlato at firstname.lastname@example.org or Mark Goldman at email@example.com or Brian Penny at firstname.lastname@example.org