One of the most important, if overlooked, provisions in the law creating the new Consumer Financial Protection Bureau is a provision allowing the agency to push back against one of the most egregious errors committed by the Supreme Court in recent years — a line of decisions allowing companies to force their consumers into a privatized, corporate-owned arbitration system that overwhelming favors corporate parties. Now that CFPB Director Richard Cordray is in place, his agency can ban this practice altogether from much of the consumer finance industry:
(a) STUDY AND REPORT.—The Bureau shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.
(b) FURTHER AUTHORITY.—The Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a).
In essence, this provision enables CFPB to prevent many lenders, investment advisers and other financial service providers from using one of the most abusive tools endorsed by the Supreme Court’s misreading of federal law — locking consumers out of real courts and forcing them into corporate-run arbitration. Moreover, because the Supreme Court recently piggybacked on its forced arbitration decisions to allow corporations to immunize themselves from the class action lawsuits that are essential to prevent companies from bleeding their consumers dry a few ill-gotten dollars at a time, CFPB can also eliminate this practice within much of the financial industry.
Lest there be any doubt, corporate arbitrators simply cannot be trusted to provide a fair hearing to consumers — in large part because corporations typically have a great deal of influence over who will arbitrate their cases. One of the most notorious forced arbitration firms — which thankfully was largely shut down after the state of Minnesota challenged its many abusive practices — once ordered a woman to pay a credit card company almost $8,000 because she had the same name as another woman who owed that company money. When a Harvard law professor who used to work part-time as an arbitrator handed down a single decision against a credit card company she was stripped of her caseload by the arbitration firm at the request of the credit card industry.
Our justice system cannot work when one side gets to choose who judges them. The CFPB’s new director has an important opportunity to restore a functioning system of justice to much of the financial industry — he should not hesitate one second before he takes it.