CFPB’s Motivation In Banning Class Actions Called Into Question

The recent media “barnstorm” against arbitration clauses that prevent class action lawsuits doesn’t paint a complete picture, a Chicago attorney says, though the federal Consumer Financial Protection Bureau is planning to ban them.

Matt Stromquist, a partner at the Chicago-based Pilgrim Christakis – a nine-person litigation boutique firm focused on consumer finance and class action litigation – says the CFPB’s own research shows that arbitration is more helpful to class members.

“I think arbitration can, in many ways, be a much better avenue for people, consumers especially, than joining a class action,” he recently told Legal Newsline. “And I think statistics from the Consumer Financial Protection Bureau’s own study bear that out.”

The CFPB, which was created to regulate the financial services industry, released its set of proposed rules prohibiting mandatory arbitration clauses that prevent class action lawsuits in conjunction with a field hearing in Albuquerque, NM, earlier this month. The field hearing was the third such hearing it has held on arbitration. The first was held last March and the second was held in October.

Under the CFPB’s proposal, companies would be prohibited from putting mandatory arbitration clauses in new contracts.

“We have investigated arbitration, and our research found that very few consumers know anything about these ‘gotcha’ clauses,” CFPB Director Richard Cordray said at the Albuquerque hearing. “Even fewer consumers know how they actually work.

“Based on our research, we believe that any prospect of meaningful relief for groups of consumers is effectively extinguished by forcing them to fight their legal disputes as lone individuals.”

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.

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