Lawmakers Seek Improved Consumer Protections From CFPB

Sen. Elizabeth Warren, a member of the Senate Banking, Housing, and Urban Affairs Committee, and Rep. Hank Johnson are leading 91 U.S. lawmakers in a letter to the Consumer Financial Protection Bureau (CFPB) asking the Bureau to protect consumers by conducting a rulemaking on forced arbitration for financial products and services.

“Since the CFPB’s founding 12 years ago, the Bureau has worked tirelessly to protect American consumers, by holding repeat offenders accountable through hundreds of enforcement actions, launching efforts to save Americans billions of dollars in junk fees, and partnering with other agencies to ensure that new technologies comply with existing consumer protection laws,” said the letter. “Unfortunately, many regulations and laws intended to protect consumers continue to be undermined and rendered meaningless by provisions jammed into fine print, such as forced arbitration clauses. Though Congress has limited the use of forced arbitration for certain sectors and cases, the Bureau is best positioned to issue a rulemaking on forced arbitration for financial products and services.”

The CFPB issued a rule limiting class action waivers in contracts for certain financial products and services in 2017, but that rulemaking was overturned by Republicans through the Congressional Review Act. Since then, corporations’ use of forced arbitration has increased, too often leaving consumers with no pathway for accountability when they have been hurt by financial institutions. Studies on forced arbitration released after 2017 show that consumers who are Black, indigenous, people of color or female are more likely than white men to be forced into arbitration.

“Companies hide forced arbitration clauses in the fine print, take-it-or-leave-it terms accompanying many financial products and services,” continued the coalition in their letter. “These fine print traps prohibit consumers from accessing the civil justice system to resolve disputes with financial services companies. Instead, consumers are forced into a non-transparent, private system in which their position is inherently unequal relative to the company. In such an unfair playing field, with no ability to appeal decisions, it is no surprise that consumers rarely prevail over financial services providers. And yet, most consumers are unaware that they are relinquishing their fundamental right to access the court system when they sign up for a financial service or use a financial product.”

Earlier this fall, more than 100 consumer advocacy, labor, and racial justice groups and 18 veteran and military service groups submitted comments to the CFPB supporting a rulemaking limiting forced arbitration in financial products and services. In September 2023, a group of consumer advocate organizations filed a Petition for Rulemaking with the CFPB, asking the Bureau to prohibit the use of pre-dispute arbitration clauses in consumer contracts, in favor of clauses that would permit consumers to choose between arbitration and litigation only after a dispute has arisen. More than 160 law professors submitted a letter in support, explaining that such a rule “is well within the CFPB’s authority.”

Sen. Warren has led oversight of giant financial institutions to protect consumers via a number of initiatives including:

• In September 2023, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Warren praised the CFPB for taking action to address risks posed by artificial intelligence in financial services, such as lenders using artificial intelligence (AI) to produce biased home appraisals or banks using AI-powered chatbots that may give consumers misleading financial information.
• In July 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection, Sen. Warren blasted big banks’ use of predatory overdraft fees and called on the CFPB to continue its oversight of these giant banks.
• In June 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Sen. Warren applauded the CFPB’s proposed rule to cap unreasonable credit card late fees, which could save working families billions of dollars each year.
• In December 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Sen. Warren highlighted the CFPB’s achievements over the previous year to hold big banks and giant corporations accountable and put money back in working families’ pockets.
• In December 2022, Sen. Warren sent a letter to Early Warning Services (EWS), the parent company of big bank-owned peer-to-peer payment platform Zelle, questioning EWS about upcoming changes to its fraud policy on Zelle, including changes to its liability policies and refunds for customers who were scammed, and requesting a full briefing about these changes.
• In November 2022, Sen. Warren sent letters to Wells Fargo and EWS, criticizing both companies’ responses to her report as misleading and false, and called on them to release all data on fraud and scams on Zelle to back up their rhetoric disputing her findings.
• In October 2022, Sen. Warren sent a letter to the CFPB, summarizing the findings of her investigation revealing high rates of fraud and scams on Zelle and that the banks are not refunding the vast majority of defrauded consumers, breaking their promises to their customers, and potentially violating federal law.
• In July 2022, Sens. Warren, Bob Menendez, and Jack Reed sent letters to each of the banks that own EWS, requesting information about the Zelle scams and frauds its customers have reported to them. With the exception of Truist, the relevant banks testifying provided little to none of the information the lawmakers requested, until Senators Warren and Menendez again pressed bank CEOs for this information at the September BHUA Committee hearing.
• In April 2022, Sen. Warren, Menendez, and Reed sent a letter to EWS, asking the company to disclose how many reports of fraud it had received from users since the beginning of 2018. Early Warning Services provided little data on the volume of fraudulent transactions occurring on Zelle.

“Restoring consumers’ ability to make the choice about how they wish to exercise their rights is important for a fair, stable, and robust financial marketplace,” closed the letter. “Given the recent findings on the lack of understanding and awareness of forced arbitration, coupled with the worsening corporate tactics stemming from forced arbitration, we urge the Bureau to issue a rule addressing forced arbitration. We also encourage other federal agencies to consider actions to rein in corporate abuse of fine print traps like forced arbitration provisions.