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Forced Arbitration Clauses Combated by New CFPB Rule

For decades, many large banks and companies have relied on forced arbitration clauses in client or consumer contracts to more or less avoid lawsuits that could damage their own finances and reputations. In effect, a forced arbitration clause makes it impossible for the contract signer – the consumer in these cases – to sue the contract holder – the company – for wrongdoing, fraud, negligence, and so forth. The only option for seeking compensation or restitution after signing a forced arbitration clause is undergoing arbitration that is closed off to the public and cannot go to court.

When forced arbitration clauses were first devised, it was sold by financial institutions and corporations as an easy solution to what was allegedly a nationwide court system that was overstuffed with lawsuits, most of them frivolous. As it would eventually be realized, forced arbitration clauses only benefited one group: the banks and corporations that controlled them. With the protection of forced arbitration around them, some companies used the shroud to try to get away with dishonest practices, knowing that if or when they were caught, the worst thing that would happen would be forced arbitration. If they could keep the wrongdoing out of court, the settlements offered could be minimal when compared to what a court might rule as fair punishment.

Consumer Financial Protection Bureau Intervenes

The one-sidedness of forced arbitration clauses come more and more to light with each passing year. In order to try to curb and control such clauses, the Consumer Financial Protection Bureau (CFPB) is working on new legislation that would ban forced arbitration clauses in financial service contracts that also utilized a class action ban. In effect, companies can bar class actions or demand forced arbitration, but cannot do both. A multiyear study of hundreds of class actions spurred the CFPB into writing this new bit of legislation. Based on the findings of the study, consumers were resoundingly less likely to win any compensation during forced compensation, and would win significantly less if they were successful.

The CFPB’s newly-drafted rule is not solidified into law, however. Congress must still review, scrutinize, modify, reject, or accept it. Using the Congressional Review Act, members of Congress could potentially undo the CFPB’s rule shortly after it comes into effect as well. Some groups are not hopeful that the new anti-forced arbitration clause rule will last long, as it protects multinational conglomerates, hospital groups, and big banks, all of which have significant lobbying power.

If you are interested in reading a recent opinion piece on the CFPB rule and Congress’s possible responses, you can click here to view a full article posted by The Hill. As steadfast defenders of the peoples’ rights in personal injury claims, our team at Anderson & Boutwell are watching this matter closely. Forced arbitration clauses do routinely strip people of fair compensation by eliminating the usual courtroom processes of legal complaints. If the CFPB rule is dismantled by Congress, it could be a detriment to the average American.

You can call 985.796.2245 or contact us online if you require the services of a trusted Louisiana brain injury attorney for a claim of your own.