The nation’s top financial consumer watchdog on Wednesday announced its intentions to develop rules that seek to prevent companies from surreptitiously undermining class action lawsuits.
Richard Cordray, the director of the Consumer Financial Protection Bureau (CFPB), informed lawmakers of his agency’s plans during an oversight hearing in the Senate Banking Committee.
“We have determined at this point, having digested our own study and gotten a great deal of feedback form industry and others on it that we will be moving ahead with rulemaking in this area,” Cordray said responding to an inquiry by Sen. Sherrod Brown (D-Ohio).
Brown referred to the bureau’s March study on forced arbitration clauses, which was mandated by the Dodd-Frank Wall Street Reform law. The report discovered that three-out-of-four Americans who own a credit card or bank account are unaware that they agreed to forced-arbitration clauses while signing up for those services.
The prerequisite agreements block their access to millions of dollars in annual settlements that they’d otherwise be entitled to for being victimized. More than one in ten Americans would be eligible to collect on a class action lawsuit if they weren’t unknowingly bound by the forced arbitration legalese, the investigation concluded.
The CFPB further found that only 7 percent of Americans were aware of the anti-class action lawsuit provisions in their contracts.
“I’m concerned but not surprised that the bureau found no evidence that forced arbitration leads to lower prices for consumers,” Sen. Brown said during the hearing, adding that he and other members of the committee have urged swift CFPB rulemaking to limit the practice.
The Wall Street reform law that mandated the study prohibited forced arbitration clauses from future mortgage contracts. It instructed the CFPB to implement similar rules on other financial products if the bureau determined that would be appropriate.
“We’ll be in due course here convening a small business review panel as the first step in considering what actions to take,” Cordray told the committee Wednesday.
