Karon Law Blog

House Passes Bill Banning Forced Arbitration in Consumer Financial Contracts

By Jonathan A. Karon

On May 23, 2019, the U.S. House of Representatives passed legislation prohibiting forced arbitration in consumer financial contracts (such as banks, credit card companies and investment firms) and also allowing consumers to pursue class action claims.  This would re-instate a rule enacted in 2016 by the Consumer Financial Protection Bureau (CFPB) which protected consumers from forced arbitration and preserved their class action rights.  Unfortunately, these important consumer protections were abolished in 2017 by the then Republican controlled Congress and President Trump.

The provision banning forced arbitration was part of a larger bill, “The Consumers First Act” H.R. 1500 which was intended to address perceived weakening of the commitment to consumer protection of the CFPB under the Trump Administration.  The provision banning forced arbitration was offered as an Amendment by Texas Democratic Representative Al Green.

In a statement issued after the House passed the legislation, American Association for Justice CEO Linda Lipsen noted the importance of these protections. “Today the House of Representatives took action to restore our constitutional rights by passing the Green amendment, which allows consumers to band together and hold big banks accountable in front of a judge and jury. The amendment regulates forced arbitration and brings much-needed transparency to the process. Citizens financially wronged by payday lenders, credit card companies and corporations are currently forced into a rigged system, but today’s vote is a step forward to protecting consumer rights.”

The bill likely faces an uphill fight in the Republican controlled Senate.  Well financed corporate interests have already spoken out against these consumer protections and even the bill obtains majority support, it seems unlikely that it would win the 60 votes needed to overcome a fillibuster.  Nonetheless, as the proverb says (more or less) “long journeys begin with a single step”.  This blog has repeatedly discussed the unfairness of forced arbitration and how corporations are using one-sided arbitration clauses to deny consumers their day in court.  Even if the legislation does not pass in this session, it should be on everyone’s radar screens.  There is an important election coming up in 2020.  Your right to your day in Court is one of the issues on the ballot.