Two Cheers for CFPB’s Forced Arbitration Ban

The proposed regs should go further.

This morning the Wall Street Journal reports:

The CFPB is set Wednesday to propose rules that curb mandatory arbitration. The plan throws the new federal agency into the center of a national debate over whether consumers are helped or harmed by arbitration agreements that block class-action lawsuits. Such clauses are common for a range of products and services such as mobile phones, home mortgages and nursing homes.

The proposals under consideration would ban companies from including arbitration clauses that block class-action lawsuits in their consumer contracts for a broad range of financial products including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto loans, payday loans and private student loans.

Here’s a copy of the Consumer Financial Protection Bureau’s newly unveiled proposal.

I give the agency two cheers for this proposal, not three. It’s a step in the right direction but doesn’t go far enough.

While the agency is right, and has explicit congressional authorization, to prohibit pre-dispute mandatory arbitration clauses that would stand in the way of class-action lawsuits, it doesn’t also ban the clauses with respect to individual lawsuits. It could, and should.

As I’ve argued in places like U.S. News & World Report and Daily Caller, all forced-arb clauses are unconscionable, when imposed on a pre-dispute, take-it-or-leave it basis and the consumer has nowhere else to take his business. Such clauses aren’t voluntary and therefore shouldn’t be enforced. Sadly, such clauses are increasingly common, thanks to the Federal Arbitration Act of 1925, as aggressively expanded by a number of recent Supreme Court decisions. Today it’s nearly impossible for consumers to avoid these clauses or say no to them.

The remedy is simple: Congress should repeal the Arbitration Act or at least to amend it to restore the Seventh Amendment right to a civil jury trial. At a minimum, Congress shouldn’t try to block the new reg.*

Arbitration clauses should be voluntary.

Dean Clancy, a former senior White House and congressional aide, writes on U.S. health care, budget, and constitutional issues.  Follow him at deanclancy.com or on twitter @deanclancy.


NOTE

* I assume the U.S. Chamber of Commerce will denounce the new rule in passionate terms as a costly sop to the trial lawyers. This is ironic, since the same organization loudly objects to forced arbitration when the shoe is on the other foot.

 

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