A federal regulation conservatives should welcome.
The ban, drawn up under congressional authorization by the Consumer Financial Protection Bureau (CFPB), and set to take effect in 90 days, makes the annoying, ubiquitous clauses optional in credit card and other consumer credit contracts. This is a big win for consumers—and the Constitution.
The Chamber of Commerce and pro-business Republicans are panning the rule as an infringement of the sacred right of contract. Pro-market conservatives should welcome it for the same reason: It vindicates the sacred right of contract—and the U.S. Constitution.
Forced arbitration clauses are nominally voluntary but in reality involuntary. They’re “take it or leave it” propositions that force a consumer to waive his constitutional right to a civil jury trial in the event of a dispute with the seller, before any injury has occurred. Private arbitration may be a great alternative to going to court, but no one should have to waive his constitutional rights as a condition of buying a toaster or renting a car.
The Federal Arbitration Act, upon which these offensive clauses rest, is unconstitutional, because it violates the Seventh Amendment’s guarantee that
In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved. [Emphasis added.]
That’s a law, not a suggestion.
I have no love for the CFPB, but the Constitution needs friends wherever it can get them.
In recent years, Congress has begun turning against the clauses. It banned them in mortgage contracts in 2010 and authorized CFPB and the Securities and Exchange Commission (SEC) to ban them in other areas. CFPB issued a draft rule last October. Today, it finalized that rule.
Unfortunately, the rule only prohibits banks and other financial companies from using the clauses to block consumers from joining together in class action lawsuits. Individuals get no such relief. That doesn’t go far enough. The noxious clauses should be optional for everyone.
Congress should not only welcome the forced-arbitration ban, it should go further and pass the SCRA Rights Protection Act (H.R.4161 and S.2331), a bill to protect U.S. servicemembers and their families from being victimized by the clauses during a military deployment. Unscrupulous companies hide behind the clauses to avoid their obligations under the Civil War-era Servicemembers Civil Relief Act (SCRA), exposing military families to illegal repossessions of their homes, cars, and other property.
Today’s announcement is a welcome win for the Seventh Amendment—and consumers.