Give the People What They Want — without Arbitration Clause Restrictions

Last night, the Senate voted (51−50, with Vice President Pence breaking the tie) to repeal one of the most recent rules issued by the Consumer Financial Protection Bureau (CFPB). The rule would have prevented most financial companies from requiring that disputes between a company and its customers be determined through arbitration and without the use of class actions.


Those who support the rule have noted that the majority of contracts between customers and financial firms include clauses that require disputes to be resolved through arbitration, which means no class actions. This is true. Arbitration clauses are fairly standard in these contracts. But, as I said in an earlier post on the rule, the ubiquity of such clauses might just mean that customers are okay with them. If customers really cared about arbitration clauses, financial firms could distinguish themselves from competition by offering arbitration‐​free contracts. The lack of such options for customers seems to suggest that customers don’t really care.


The response to such an argument may be that these clauses are hidden in fine print and most customers don’t even know they exist. Okay, let’s say for the moment that’s true; that most customers didn’t know arbitration clauses existed. But that shouldn’t be the case now. Not now we’ve had national news about this rule, lots of debate, ample time for the rule’s supporters to educate the public, breaking news drama involving a late night vote in the Senate, and reports tracking the Vice President’s progress to the Hill to cast his deciding vote. My phone was flashing with news alerts all through the evening. If the public was unaware of arbitration clauses before, they have had plenty of opportunities now to become familiar with them.


So now, if the public really wants to be free of arbitration clauses, the next step is obvious, right? A company should emerge announcing that it is offering arbitration‐​free contracts for all of its customers. If arbitration harms consumers, as proponents of the rule have argued, consumers should clamor for contracts that allow them to go to court and to join together in class actions. Companies, including financial companies, make their money giving customers what they want. If arbitration‐​free contracts become popular, we will know that this was what consumers wanted. If they don’t become popular, well, we’ll have an answer then, too. But, either way, consumers will get what they want without a new regulation.