Arbitration no longer cuts it for the CFPB

Banks and credit card companies may not force customers to sign away their legal rights to take part in class action lawsuits, under an early-stage U.S. government proposal that is likely to draw ire from Wall Street. The Consumer Financial Protection Bureau says the proposal marks the first step in the process of potentially drafting regulations to ban certain "free pass" arbitration clauses, often buried in fine print, that consumers must sign off on when opening financial accounts. Banks, credit card companies, lenders, and broker dealers typically use such clauses as a way to shield themselves from lawsuits and lower their legal costs. Signers cannot file claims in federal courts, and have to resolve disputes individually through privately appointed arbitrators. "The essence of the proposals we have under consideration is that they would get rid of this free pass that prevents consumers from holding their financial providers directly accountable for the harm they cause when they violate the law," CFPB Director Richard Cordray said in prepared remarks he plans to deliver at a hearing on the topic in Denver, Colorado. This is long overdue, as companies should not be able to place themselves above the law and evade public accountability by inserting the magic word 'arbitration' in a document and dictating the favorable consequences. All that's needed now is for it to become law.