Johnson & Conyers urge House to reject flawed legislation that strips Americans of their access to courts

WASHINGTON, D.C. -- Today, Congressman Henry C. “Hank” Johnson (D-Ga.) and Congressman John Conyers, Jr. (D-Mich.) sent a letter to the Financial Services Subcommittee on Financial Institutions and Consumer Credit in opposition to the “Bureau Arbitration Fairness Act.” The Financial Services Subcommittee on Financial Institutions and Consumer Credit considered this legislation today in a hearing entitled “Legislative Proposals to Improve Transparency and Accountability at the CFPB.” As the hearing commenced, and following transmission of the letter, Representatives Johnson and Conyers issued the following statement:

“This afternoon, a Financial Services Subcommittee is considering the ‘Bureau Arbitration Fairness Act,’ legislation that would insulate the nation’s largest financial institutions from all legal recourse, even when they have violated the law. Specifically, this bill would eliminate the Consumer Financial Protection Bureau’s (CFPB) ability to prohibit or even limit the use of forced arbitration agreements in consumer financial contracts. For too long, large corporations have used these agreements to stack the deck against the individuals who sign up for student loans, credit cards, and other financial products without understanding dense language buried deep within agreements. Today we wrote the Financial Services Subcommittee with the simple message that enough is enough,” said Johnson and Conyers.

“Forced arbitration clauses strip individuals of their fundamental constitutional rights, depriving countless Americans of a fair process and a meaningful choice of how to resolve disputes with powerful financial corporations. In an effort to create actual arbitration fairness—unlike the so-called ‘Bureau Arbitration Fairness Act’—we have introduced H.R. 1844, the ‘Arbitration Fairness Act of 2013,’ since the 110th Congress that prevents the use of forced arbitration clauses in consumer, employment, and antitrust agreements.

“When the choice of arbitration is post-dispute—and therefore understandable and voluntary—arbitration is a fair process that parties choose willingly. We call on our colleagues in Congress to reject the unfortunate ‘Bureau Arbitration Fairness Act,’ that is designed intentionally to neuter the CFPB’s rulemaking authority.”

The full text of the letter is attached and can be found below:

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The Honorable Shelley Moore Capito
Chairman, Subcommittee on Financial Institutions and Consumer Credit
Committee on Financial Services
2129 Rayburn House Office Building
Washington, DC 20515

Dear Chairman Moore Capito and Members of the Subcommittee:
We write in strong opposition to H.R. ____, the “Bureau Arbitration Fairness Act.” Rep. Patrick McHenry’s draft legislation would eliminate the authority of the Consumer Financial Protection Bureau (“CFPB”) to study, prohibit, or limit the use of pre-dispute mandatory arbitration clauses in consumer financial contracts under its jurisdiction. Forced arbitration clauses are pervasive in consumer contracts, depriving countless Americans of fair process and justice every year. That is why we introduced H.R. 1844, the “Arbitration Fairness Act of 2013,” legislation that Rep. Hank Johnson has championed since the 110th Congress. Unlike the so-called “Bureau Arbitration Fairness Act,” H.R. 1844 would create actual arbitration fairness by preventing the use of forced arbitration clauses in consumer, employment, and antitrust agreements. When the choice of arbitration is post-dispute—and therefore understandable and voluntary—arbitration is a fair process that parties choose willingly. We urge our colleagues to reject Mr. McHenry’s draft legislation that would neuter the CFPB’s rulemaking authority on this critical matter.

Congress has long observed the harmful impact of forced arbitration clauses. Buried in the fine print of consumer and employment contracts, arbitration clauses harm countless consumers and workers across the country. Congress found that forced arbitration is not only prevalent in financial products and services, but also in other consumer contracts and employment contracts. Congress also found that forced arbitration eliminates incentives for the financial services industry to treat consumers fairly when it knows that there is little chance for public accountability for corporate wrongdoing.

During passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Congress specifically enacted Section 1028 authorizing the CFPB to first study the use of forced arbitration, and then prohibit or impose conditions or limitations on the use of forced arbitration agreements in consumer financial products or services. In doing so, Congress determined that forced arbitration was an unfair and deceptive practice that should be examined and then eliminated. It is therefore alarming and unfortunate that Representative McHenry’s draft legislation seeks to remove the CFPB’s authority to protect consumers from the predatory practice of forced arbitration before the Bureau even has a chance to fully review the issue.

The Bureau’s initial study of forced arbitration clauses in consumer financial services contracts amply demonstrated that these clauses burden consumers. The study found that most large banks use arbitration clauses in their credit card, prepaid cards, and checking account contracts. Additionally, the CFPB determined that over 90 percent of the contracts with arbitration clauses also ban consumers from participating in class action lawsuits. Many class actions involve claims seeking recovery for small-dollar losses, such as illegal fees added to loans, which would be impossible to recover on a case-by-case basis. Because many consumers do not file arbitrations—particularly for small-dollar disputes—this highlights the importance of class action lawsuits for consumer protection.

We are particularly concerned by the effect of these clauses on consumers’ legal rights. Allowing these clauses to permeate contracts for consumer financial products and services shrouds corporate misconduct. Enabled by recent U.S. Supreme Court decisions, companies now use forced arbitration clauses to eliminate the ability of consumers to seek collective redress, leaving them without any practical way to vindicate their rights. The rise of forced arbitration clauses has enormous consequences for consumers. It allows businesses to engage in unfair and deceptive practices without fear of consumers privately obtaining relief, including injunctions. These clauses strip individuals of their fundamental constitutional rights and deprive them of a meaningful choice of how to resolve disputes with powerful financial corporations. That is, to avoid these arbitration clauses a consumer would have to forego critical products and services.

Consumers play a critical oversight role in the marketplace because they experience corporate practices firsthand. As such, a consumer’s role is not only to seek redress when he or she is injured, but also to hold bad actors publicly accountable. The ability to choose how to resolve disputes with powerful financial corporations will help consumers and the marketplace as a whole. The authority granted to the CFPB by Congress has the ability to incentivize the financial services industry to adopt fair and open practices and to restore consumers’ ability to hold wrongdoers accountable.

Forced arbitration also enables companies to violate federal lending laws and well-established federal consumer protections due to the lack of public accountability. As a result, enforcement under the Truth in Lending Act, the Fair Debt Collection Practices Act, the Home Owners Equity Protection Act, the Credit Repair Organizations Act, Fair Credit Reporting Act, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, and other laws is severely restricted.

The CFPB’s authority to restrict this predatory practice is critical to the public interest. Forced arbitration has been an unfortunate factor in consumer contracts for far too long, denying thousands of consumers of their rights and shielding bad business practices.
We therefore urge my colleagues to reject Mr. McHenry’s draft legislation.

Thank you for your attention to this important issue. If you have any questions, please contact Slade Bond at Slade.Bond@mail.house.gov or Norberto Salinas at Norberto.Salinas@mail.house.gov or 202-225-6906.

Sincerely,

Henry C. “Hank” Johnson, Jr.

Ranking Member
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law

John Conyers, Jr.
Ranking Member


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