Consumers unfairly forced to give up their legal rights through the fine print in consumer contracts may soon be protected by the Obama administration’s proposal to overhaul the nation’s financial regulatory system.
As the WSJ Law Blog reports, the Consumer Financial Protection Agency (CFPA), the proposed federal agency dedicated to protecting consumers and investors from financial abuse, will have the “authority to ban or restrict forced arbitration clauses” in consumer financial products and services. The CFPA would have the authority to shield consumers from hidden arbitration language in financial contracts such as mortgages and credit card agreements.
The proposed financial guideline also includes a provision to protect consumers in investment contracts. After studying the effects of pre-dispute binding arbitration on investors, the Securities and Exchange Council would have the authority to “prohibit mandatory arbitration clauses in broker-dealer and investment advisory accounts with retail customers.”
Arbitration can be a valid and effective method of dispute resolution when both parties voluntarily agree to arbitrate, but when arbitration is used by a corporation to limit the legal rights of an individual, it becomes an abusive weapon.
Widespread failures in consumer protections and abusive corporate practices contributed to the worst financial crisis since the great depression. Rooting out pre-dispute forced arbitration in consumer financial contracts is a step towards restoring accountability in the financial market.
Click here for more information on mandatory binding arbitration.