HERRING JOINS 18 STATES CALLING FOR LIMITS ON MANDATORY ARBITRATION CLAUSES

~ Multistate Letter to Consumer Financial Protection Bureau Requests Restoration of Important Consumer Protections ~

RICHMOND(August 12, 2016)-Looking to restore fundamental protections, rights, and bargaining power for consumers, Attorney General Mark R. Herring has joined 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. These mandatory arbitration clauses make it harder for consumers to hold banks and financial institutions accountable for misdeeds by banning lawsuits and restricting participation in class action lawsuits. Although the clauses have been banned in the mortgage industry following the mortgage crisis, they are frequently inserted into contracts for things like credit cards, checking accounts, and payday loans.

The multistate letter from eighteen state attorneys general 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.   

"Consumers should not have to waive their rights to use the kind of accounts and services that are increasingly becoming a necessity," said Attorney General Herring. "These arbitration clauses force disputes out of the public domain and put consumers at a significant disadvantage when seeking to address abuses or wrongdoing by a financial institution. Elimination of these clauses, as has been done in the mortgage industry, can help protect consumers and root out any fraud or illegal activity."

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 court case. 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.

"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. "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. 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.

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