Earlier this week, the Department of Defense announced it will be expanding the Military Lending Act to cap interest rates and prohibit forced arbitration in credit cards, payday loans, vehicle title loans, refund anticipation loans, and other types of loans made to service members. A previous rule had been riddled with loopholes that allowed lenders to charge exorbitant fees and avoid the arbitration ban. The expansion is an important step toward protecting troops who are often targeted by predatory lenders before being deployed.
The news comes as the Consumer Financial Protection Bureau (CFPB) moves toward rulemaking of its own on forced arbitration. On Wednesday of last week, CFPB Director Richard Cordray confirmed the agency would soon be announcing a rule on the use of forced arbitration in financial products for all American consumers.
The decision follows two studies conducted by the agency that demonstrated the prevalence of forced arbitration and the harm it causes. Tens of millions of consumers use products under the CFPB’s jurisdiction that contain forced arbitration clauses. For some products, including payday loans and cell phones, nearly every contract signed by a consumer has an arbitration clause in it. Yet most consumers mistakenly believed they could still sue their employer in court or join others in such a suit. Once in arbitration, the report found that businesses won 93 percent of their claims and counterclaims.
Industry groups and congressional Republicans have already begun to fight back. An amendment to the Financial Services Appropriations Bill would require the CFPB to conduct yet another, duplicative study—at taxpayer expense—before beginning the rulemaking process. And in a transparent attempt to create further delay, the American Bankers Association, the Consumer Bankers Association, and The Financial Services Roundtable made similar demands in a recent letter to the CFPB.
Yet these efforts have not been enough to stall our momentum. The CFPB has confirmed its intention to initiate the rulemaking process despite industry objections, and for now the financial services bill has stalled on the House floor. More than three years after the CFPB began work on its arbitration study, meaningful change is finally on its way.
This month marks the five year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gives the CFPB its authority to ban forced arbitration clauses in the financial industry, and the four year anniversary of the CFPB itself. On these important birthdays, recent efforts to curtail forced arbitration provide reason to celebrate—but there is more work to be done. Industry opposition will continue. The rulemaking process, once underway, will be contentious. And AFJ will be there fighting every step of the way.