The result of five years of careful study and consideration, the rule would restrict the financial industry’s use of forced arbitration – a tactic Wall Street banks and payday lenders use to block consumers from challenging illegal behavior in court.
Corporate attorneys bury “ripoff clauses” in the fine print of financial contracts to evade public accountability for charges of fraud and lawbreaking by forcing consumers into secret arbitration proceedings rigged in the banks’ favor. These clauses often ban class action lawsuits as well, leaving consumers unable to challenge widespread misconduct since it is often too expensive to pursue small-dollar disputes one-by-one in arbitration. Wells Fargo has repeatedly invoked ripoff clauses in legitimate account contracts to block customers from suing together over fraudulent accounts, and the practice helped the bank hide its misconduct for years.
“The CFPB’s arbitration rule is good news for all of our nation’s consumers, but the rule is especially necessary to ensure that our servicemembers can defend their rights and enforce federal protections against lenders that target our military. That is why it has received strong support from the Military Coalition representing 5.5 million servicemembers and 29 military groups,” said Dory Rand, President of Woodstock.
While the CFPB took a more modest approach rather than banning all forms of forced arbitration, the rule restores consumers’ right to join together in class action lawsuits and returns transparency to individual arbitration by establishing a public record of claims and outcomes. During the public comment period last August, Woodstock joined with 280 consumer, civil rights, labor, and community groups and more than 100,000 individual consumers across the country to support the proposed rule.
Woodstock Institute is a leading nonprofit research and policy organization in the areas of equitable lending and investments, wealth creation and preservation, and safe and affordable financial products and services. Woodstock Institute works locally and nationally to create a financial system in which lower-wealth persons and communities of color can safely borrow, save, and build wealth so that they can achieve economic security and community prosperity.