Thirty-eight Democratic Senators and sixty-five Democratic Representatives submitted letters to the Consumer Financial Protection Bureau ("CFPB") in which they expressed strong support for the bureau's proposed rule to prohibit mandatory arbitration clauses. The rule proposal is predicated on a four year, 728-page study on "research into the effects of forced arbitration."

The Senators asserted that:

  • forced arbitration favors financial institutions over consumers in providing no meaningful appeals process for those consumers who disagree with the outcome;
  • even when consumers recovered awards in their affirmative claims, "they [often won] far less than they had claimed, while the companies that obtained relief recovered nearly the entirety of their claim";
  • no evidence suggests that forced arbitration lowers costs for consumers or limits the availability of consumer credit;
  • arbitration clauses often are so opaque to consumers that the consumers remain unaware of the clauses' significance until disputes arise;
  • "class action waivers frequently suppress consumers' claims entirely and prevent the effective enforcement of substantive federal and state laws aimed at protecting consumers – perhaps uniquely more so in the financial services context than any other area of the law, since consumers' claims in the financial services context are frequently for low-dollar amounts"; and
  • the proposed requirement to report certain information about individual arbitrations and provide access to the arbitrations online will "encourage more consumer-friendly behavior and accountability from the companies who frequently utilize this process."

The Representatives emphasized their strong belief that the CFPB's "comprehensive study on forced arbitration unequivocally demonstrates that the proposed rule is necessary to the public interest and consumer welfare." They urged the CFPB to "proceed quickly to ensure that consumers have equal protection under the law."

Commentary / Steven Lofchie

Given the CFPB's political orientation, there was never any doubt about the outcome of the study.  See "FSC Considers Capital Requirements under the Proposed 'CHOICE' Act." See also the  testimony of Professor Adam Levitin, who defended the CFPB's work by calling it "mission-driven" (even though many would prefer that government employees' work be truth-driven). Given CFPB's history of biased research, it would be foolish to accord much weight to this study. See, e.g.,  "Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending" (House Financial Services Committee, Majority Staff Report, 2015).

Partisan acts like this one illustrate why the CFPB would benefit from being run by a two-party, five-person commission instead of a single agency head. Allowing for internal dissent and challenges would lend credibility to the CFPB's studies if and when they were fairly done.

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