United States Senate

WASHINGTON. DC 20510

August 3, 2016

The Honorable Richard Cordray

Director
Consumer Financial Protection Bureau

1700 G Street NW
Washington, DC 20552

Dear Director Cordray;

We write to commend the Consumer Financial Protection Bureau (CFPB) for its
proposed rule to limit the use of mandatory, pre-dispute ("forced ) arbitration clauses in
consumer financial product and service contracts. Every day, Americans across the country are
forced to sign away their constitutional right to access the courts as a condition of purchasing
common products and services like credit cards, checking accounts, and private student loans. To
restore Americans' access to justice and hold financial institutions accountable, we strongly
support the CFPB's proposal to preserve the ability of consumers to band together in class
actions when seeking relief through the civil justice system.
In recent decades, companies from a broad range of industries have increasingly
employed forced arbitration clauses in their service and product contracts. These clauses require
a consumer to submit any claim that may arise against a company to binding arbitration - a
privatized justice system that studies show consistently produces results that favor large
corporations and offers no meaningful appeals process. These contract provisions also frequently
include a class action waiver, meaning that consumers are unable to band together through
collective action to address widespread wrongdoings by powerful corporations. Depending on
the claim, class action waivers can prevent consumers from seeking recourse altogether, because
the claims are so small that consumers cannot afford to pursue them individually. As a result,
consumers are left without redress, and companies are unaccountable for their unscrupulous
behavior.

In the context of consumer financial products and services, arbitration clauses are
included in contracts for loans, such as auto loans, credit cards, or private student loans, prepaid
cards, checking and savings accounts, credit reports, debt collection, debt management and relief
services, check cashing, and payment processingessential services that American families rely
on every day. Armed with these clauses, banks and financial companies are able to prevent
consumers from raising disputes in court individually or as a class, which might otherwise deter
practices that harm consumers.

Bureau of Consumers Fin. Prof, Proposed Rule with Request for Public Comment, Arbitration Agreements
(CFPB-2016-0020), page 4. Available at:
htt]r//ntes.consLiinei1iiiatice.gov/E/i.iocuine!Us/C'FPB_Ai-bitt';Hion Ayrcernents_NoticL1 1 f:li'op^)sed_Rnlcinnkitiy.pdf

Recognizing the urgent need to address these troubling practices, Congress passed the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010 to
improve accountability, strengthen the financial system, and establish the CFPB. Dodd-Frank
included several restrictions on the use of forced arbitration, including a mandate for the CFPB
to take action on arbitration. Under Section 1028 of Dodd-Frank, Congress specifically directed
the CFPB to study the use of forced arbitration in connection with the offering of consumer
financial products and services, and authorized it to "prohibit or impose conditions or
limitations on the use of such agreements based on the study results. Section 1028 directed the
CFPB to promulgate regulations restricting forced arbitration clauses "if the Bureau finds that
such a prohibition or imposition of conditions or limitations is in the public interest and for the
protection of consumers," thereby acknowledging the potential for forced arbitration to insulate
financial institutions from accountability and harm consumers. Indeed, the Dodd-Frank
committee report language on Section 1028 shows that Congress was concerned about consumer
harm resulting from forced arbitration: "The Committee is concerned that consumers have little
leverage to bargain over arbitration procedures when they sign a contract for a consumer
financial product or service."5 Dodd-Frank also included authority for the SEC to conduct
rulemaking prohibiting the use of forced arbitration between customers and broker-dealers or
investment advisers and banned forced arbitration in mortgage loans in response to the housing
crisis and widespread claims of misconduct.7

In fulfilling its Section 1028 mandate, in 2012, the CFPB initiated research into the
effects of forced arbitration that lasted nearly four years and ultimately resulted in a
comprehensive 728-page study.8 Importantly, the CFPB engaged with key industry and
consumer stakeholders and other interested parties throughout this process, issuing a
comprehensive request for information in the early stages of the study process seeking feedback
on scope, methods, and data sources. The CFPB published preliminary results in December

2013, identifying nine additional work streams for inclusion in the report and seeking additional
public feedback. The CFPB also solicited public feedback on a consumer survey in June 2013
and May 2014, and held roundtable discussions with industry and consumer representatives
2 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203 (2010).
3 Dodd-Frank 1028(a), codified at 12 U.S.C. 5518.
4Dodd-Frank1028(b).
5 United States Senate Committee on Banking, Housing, and Urban Affairs Committee Report 111-176,
commentary to Section 1028.

6 Dodd-Frank 921. See also Dodd-Frank 922, which banned the use of forced arbitration in securities
whistleblower claims ("No predispute arbitration agreement shall be valid or enforceable, if the agreement requires
arbitration of a dispute arising under this section.")
Dodd-Frank 1414 ("No residential mortgage and no extension of credit under an open end consumer credit plan
secured by the principal dwelling of the consumer may include terms which require arbitration or any other
nonjucHcial procedure as the method for resolving any controversy or settling any claims arising out of the
transaction.").
8/rf,
9 Bureau of Consumer Fin. Prot., Request for Information Regarding Scope, Methods and Data Sources for

Conducting Study ofPre-Dispute Arbitration Agreements, 77 FR 25148 (Apr. 27, 2012).

10 Bureau of Consumer Fin. Prof, Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street
Reform and Consumer Protection Act 1028(a) (2015), section 1 at 9. Available at: available at
IUtp://f1les.consuinerf1nance..2;ov/ f/201503_ctpb_arbnmtion-stLidy-repo]'t-to-congres.s-201 S.pdf. [hereinafter "CFPB

Report"]
"Id.

after releasing its final arbitration study in March 2015. Furthermore, in October 2015, the CFPB
convened a Small Business Review Panel with the Small Business Administration and Office of
Information and Regulatory Affairs in the Office of Management and Budget for additional
small business and trade industry feedback.

We commend the CFPB for its comprehensive study and for carefully considering
extensive public input before issuing its final proposal. The agency s notice of proposed
rulemaking concludes that regulations restricting or prohibiting the use of forced arbitration
serve the public interest, provide necessary protection for consumers, and are consistent with the
findings in its study. We wholeheartedly agree, and we offer our strong support for the CFPB's
proposal that rightfully recognizes the expansive harms of forced arbitration, prohibits the unfair
use of class action waivers, and requires greater transparency concerning the arbitration of

individual claims.
I. Forced Arbitration Favors Financial Institutions at the Expense of Consumers
The CFPB's multi-year process found that forced arbitration clauses are ubiquitous in
consumer financial service contracts, impacting tens of millions of consumers. The study's
findings demonstrate that forced arbitration favors companies and provides no meaningful
appeals process for consumers who do not agree with the outcome. For example, of the
examined cases of forced arbitration in which consumers had affirmative claims, consumers
were very rarely able to obtain affirmative relief. In contrast, of the examined cases in which
companies made affirmative claims or counterclaims, companies obtained relief in the vast
majority of the disputes.14 And for the consumers who did recover an award in their affirmative
claims, the CFPB found that they won far less than they had claimed, while the companies that
obtained relief recovered nearly the entirety of their claim.
Despite this obvious disparity, consumers can rarely appeal forced arbitration decisions if
they feel the arbitrator got it wrong. From 2010 to 2012, the CFPB found evidence of only four
consumer appeals, and no company appeals. 7 Finally, the CFPB also found that very few
arbitrators arbhrate the majority of claims, which suggests that companies using the arbitration
process seek out repeat arbitrators who may have a strong financial incentive to rule in favor of
the company that repeatedly hires them.
Despite claims suggesting otherwise, the CFPB also found that there is no evidence that
forced arbitration lowers costs for consumers or limits the availability of consumer credit.
Further, arbitration clauses are often opaque to consumers, which results in a consumer not
becoming aware of their existence until a dispute arises. The CFPB's study showed that three out

12 CFPB Report, section 1.4.1.

13 CFPB Report, section 1.4.3 at 12 and section 5.2.2 at 13.

14 CFPB Report, section 4.5 at 14.

15 CFPB Report, section 5.2.2 at 13.
16 CFPB Report, section 5.2.2 at 14.
17 CFPB Report, section 5.8 at 85.
13 CFPB Report, section 2.5.3 at 34-35.
19 CFPB Report, section 10.2 at 9-11 and section f0.4 at 19.

of four consumers do not know if they are subject to a forced arbitration clause, and very few
consumers factor arbitration clauses into their financial decisions.
II. Arbitration Clauses Frequently Prevent Consumers From Seeking to Vindicate

Their Rights At All

The CFPB's study and proposal underscore the importance of class actions as a powerful
tool to help consumers effectively vindicate their rights by returning billions of dollars to
millions of consumers, in addition to achieving important non-monetary relief in the form of
changes to harmful business practices.21 Because the majority of individual claims against
consumer financial services companies are worth only small amounts of money, as Judge
Richard Posner of the Seventh Circuit Court of Appeals once put it, "the realistic alternative to a
class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a
fanatic sues for $30."22 The CFPB's data confirms this: although millions of financial consumers
are covered by forced arbitration clauses and class action waivers, the CFPB found that only a
few hundred consumers file arbitration claims each year23 and that very few file individual
claims in court,24 particularly when compared to the 32 million consumers who benefit from
class actions each year.

The CFPB's proposal recognizes that 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. The proposal also rightfully acknowledges the limitations of
the CFPB's mandate, which requires that any proposal be directly tied to the study results.
Because the CFPB's study demonstrates that class actions are the most effective and often the
only tool available for consumers to seek justice in this context, the proposal smartly preserves

the ability of consumers to band together when seeking relief through the civil justice system by
prohibiting class action waivers in consumer financial product and services contracts.
Finally, while the proposal does not prohibit companies from forcing consumers to
arbitrate individual cases, we strongly support the CFPB s efforts to require companies to report
certain information about individual arbitrations and the CFPB's proposal to provide access to

that information online. The collection and examination of this information will hopefully
encourage more consumer-fricndly behavior and accountability from the companies who
frequently utilize this process.
As the CFPB has demonstrated with its comprehensive study, forced arbitration shields
corporations from accountability for abusive, anti-consumer practices, which only encourages
unscrupulous business practices by allowing violations of the law to go unchecked. This comes
at the expense of consumers, small businesses, andjust as importantlylaw abiding
businesses. Recognizing this, the CFPB has proposed a narrowly-tailored but important rule to
20 CFPB Report.
21 CFPB Report, section 8.1 at 3.

22 Carwgie v. Household hit' I Inc., 376 F.3d 656, 661 (7th Cir. 2004).
23 CFPB Report, section 5.2.1 at 9 and section 5.5.1 at 19.
24 CFPB Report, section 6.2. 1 at 6.

restore access to our civil justice system and promote transparency within the forced arbitration
system. We, the undersigned, strongly support the CFPB's proposal and urge the Bureau to move
forward quickly to finalize this proposed rule to protect American consumers.
Sincerely,

Al Franken

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Tnited States Senator

United States Senator

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Patrick Leahy

Sherrod Brown

United States Senator

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Edward J. Marl-

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Mazie KHirono

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Ron Wyden

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Bernard Sanders
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Tom Udall

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Barbara Boxer

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Charles E. Schumer

Richard J. Durbin

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Jack Reed
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