Press Release  AG Healey Leads 18 States Calling for Limits on Mandatory Arbitration Clauses

Boston — Looking to restore fundamental protections, rights, and bargaining power for consumers, Attorney General Maura Healey has led a group of 18 states in supporting the Consumer Financial Protection Bureau (CFPB) and its proposed rule to limit the use of mandatory pre-dispute arbitration clauses in contracts for financial products and services.

The multistate letter, co-sponsored by New York Attorney General Eric Schneiderman, California Attorney General Kamala Harris, and Washington D.C. Attorney General Karl Racine and joined by 14 other states, was sent on Thursday to CFPB Director Richard Cordray. The attorneys general are supporting CFPB’s rulemaking which restores consumers’ rights to assert their claims in court in class or group actions in disputes with financial institutions.   

“For too long, consumers have been forced to surrender basic legal rights simply to use every day financial products, like credit cards,” said AG Healey. “We support CFPB’s rule to allow all consumers to be heard and to pursue class action claims in court.”

Mandatory pre-dispute arbitration clauses are routinely inserted by financial institutions into contracts for financial products such as credit cards, payday loans, and checking accounts. These clauses typically include language prohibiting consumers from pursuing a claim against the financial institution in court and restricting the consumers’ rights to participate in a class action. The prohibition on class or joint cases makes arbitration prohibitively expensive for individual consumers to pursue. Also, unlike court proceedings, arbitration matters are usually decided in secret and the decisions are not appealable. 

“The presence of mandatory pre-dispute arbitration clauses in contracts means that many serious violations of law will go undetected, undeterred, and unremedied,” the letter states.

The CFPB’s proposed rule would prohibit financial institutions from barring class actions through arbitration clauses and restore to consumers their right to form or join a class action in a judicial forum. As explained in the letter, class actions are a critical tool for individual consumers without resources to hire an attorney and pursue a claim on their own against large, sophisticated businesses.

“Class action settlements provide monetary relief to consumers, act as a deterrent to the specific defendant as well as to the industry, and lead to the reform of otherwise unchecked unlawful, unfair or deceptive business practices,” the attorneys general state. “Restoring the right of consumers with common claims to pursue redress through class actions will provide a valuable check against corporate misconduct.”

The states that participated in the letter include California, Delaware, the District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia and Washington.

To end the use of arbitration agreements by schools that accept federal student loan dollars, AG Healey led a group of 18 states earlier this month in sending a letter to the U.S. Department of Education advocating for ways to strengthen its proposed Borrower Defense Rule to protect students and taxpayers.

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