The Consumer Financial Protection Bureau issued Thursday a proposed rule that would prohibit mandatory arbitration clauses that deny groups of consumers their day in court.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets.
The CFPB seeks comment on the proposal, which prohibits companies from putting mandatory arbitration clauses that prevent class-action lawsuits in new contracts.
“The proposal would open up the legal system to consumers so they could file a class action or join a class action when someone else files it,” CFPB states.
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Under the proposal, companies would still be able to include arbitration clauses in their contracts. However, for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The measure would provide the specific language that companies must use.
A CFPB study released in March concluded that across substantially all consumer finance markets, pre-dispute forced arbitration clauses are extremely prevalent and detrimental to consumers’ ability to seek legal relief when they are wronged.
State securities regulators and consumer advocates applauded the study when it was released and praised the proposed rule released Thursday. GOP lawmakers, however, aired their concerns about CFPB’s plan.