Economic justice

How Ending Forced Arbitration Advances Economic Justice

The CFPB has the power to restrict the use of forced arbitration clauses that interfere with consumer rights.

In February, civil justice advocates scored a major victory when the U.S. Congress passed the law ending forced arbitration for sexual assault and sexual harassment. This bipartisan law empowers victims of sexual assault and sexual harassment by allowing them to file complaints in court rather than being forced into arbitration.

Binding pre-dispute arbitration clauses and class action waivers, known as forced arbitration clauses, are typically buried in take-it-or-leave-it agreements that waive basic rights of individuals to seek accounts in court when injured or injured. when their rights are violated. These clauses deprive people of the ability to hold wrongdoers accountable, regardless of the extent or severity of the misconduct. The clauses also allow abuse, discrimination and fraud to go unchecked.

As the United States Supreme Court has continued to give companies the green light to use arbitration clauses in all areas of American life, banning their use even in a claims installment is a victory.

The recent victory in Congress has many people thinking back to when the Consumer Financial Protection Bureau (CFPB) took significant steps to limit the use of arbitration for the products and services under its jurisdiction. Although Congress repealed this popular rule, the CFPB now has another chance to attempt to outlaw these clauses and help all Americans achieve economic justice.

The harms of forced arbitration are widely recognized. Several reports indicate that 81 of the top 100 US companies use arbitration in their dealings with consumers, and more than two-thirds of top-selling products include a forced arbitration clause as a condition of purchase.

The Economic Policy Institute also found that “consumers obtain redress for their claims in only 9% of disputes. On the other hand, when companies make claims or counterclaims, arbitrators award them relief 93% of the time, meaning they order the consumer to pay. »

The opposite conclusion is true when considering how aggrieved consumers fare in court. According to a CFPB study, “between 2008 and 2012, 422 consumer financial class action settlements generated more than $2 billion in cash for consumers and more than $600 million in kind,” money that comes back into the hands of consumers. The study noted that these figures served as a “floor” because many regulations included additional relief, such as provisions for companies to change their behavior.

Reducing forced arbitration clauses is not only important to return money to deceived consumers, but also as a tool to ensure that offending companies do not keep ill-gotten gains, an important principle of economic justice. .

Take, for example, payday loans. According to the Center for Progressive Reform, 99% of payday loan contracts include forced arbitration clauses. Victims of such behavior are likely to lose in arbitration when payday lenders break the law, and few even bother to try.

Blacks are 105 times more likely than other racial groups to use payday loans. This is largely due to exclusionary measures that subject communities of color to what are known as “banking deserts”.

According to at least one leading arbitration expert, people of color “stand to lose the most when arbitration substitutes for litigation.” Thus, the continued use of forced arbitration clauses hits low-income black and brown communities the hardest and allows wrongdoing companies that prey on these communities to walk away unscathed if they act illegally.

Congress’ repeal of the previous CFPB arbitration rule was a blow to consumer advocates. The repealed rule prohibited the use of class action prohibitions in contracts governing consumer products and services — which would give consumers the ability to band together to give them more bargaining power — but still allowed, with caveats -crazy, individual arbitration.

Given the backdrop of the CFPB’s previous action, civil justice advocates are scrambling to outline what steps the agency should take now to restore limits on the use of these clauses.

A lawyer’s job is not just to know the law. It’s also important to understand the other factors that decision-makers consider when making decisions—what I call the three ps: politics, personalities, and politics. The CFPB’s decision to take another turn to reduce the use of forced arbitration clauses will likely depend on all of these factors.

The CFPB must first consider Politics options available to him. The Congressional Review Act (CRA) states that an agency cannot issue another rule that is “substantially the same” as the one Congress repealed.

Therefore, any new rule cannot simply prohibit class action waivers, as the 2017 rule did. But the CRA is hardly “dirty the ground” for further agency action, as previously thought. . The agency can take several options that would not violate the CRA. For example, the agency could prohibit both class action waivers and individual arbitration, which I understand would not be against the CRA.

Then there is personality. CFPB Director Rohit Chopra has made a name for himself as a strong consumer advocate who throughout his career has been unafraid to take on big business. The direction and strength of any rule the CFPB decides to develop may well depend on how far Chopra, in consultation with his staff, is willing to go as he balances competing priorities.

And the Politics. The 2017 CFPB rule enjoyed broad bipartisan support. Since then, support for banning forced arbitration clauses has only grown. A majority of Republican, Democrat and Independent voters support banning forced arbitration in all areas. Acting again to ban forced arbitration is a political winner.

The CFPB has the ability to give people access to the justice system when they are harmed by corporate abuses. This will promote economic justice and continue the hard work to ensure a consumer financial system that works for everyone. I hope the agency will seize the opportunity.

Remington A. Gregg was a civil justice and consumer rights attorney at Public Citizen until March 2022. He is now Head of Platform Equity at Airbnb.

This essay is part of a six-part series entitled Promote economic justice.