The House of Representatives passed an amendment late Wednesday that would prohibit mandatory arbitration agreements and reinstate the right of investors to bring class action lawsuits against broker-dealers, investment banks and any financial services company they believe has caused them harm.
The amendment, which would reinstate the 2016 Consumer Financial Protection Bureau (CFPB) rule banning mandatory arbitration in consumer financial contracts, was offered by Rep. Al Green (D., Texas) and passed Wednesday by the House in the Consumers First Act.
“Today, the House of Representatives took action to restore our constitutional rights by passing the Green amendment, which allows consumers to band together and hold big banks accountable in front of a judge and jury,” said Linda Lipsen, CEO of the American Association for Justice.
The CFPB’s ban on mandatory arbitration was revoked in 2017 by the Republican-controlled Congress.
“The amendment regulates forced arbitration and brings much-needed transparency to the process,” Lipsen said.
“Citizens financially wronged by payday lenders, credit card companies and corporations are currently forced into a rigged system, but today’s vote is a step forward to protecting consumer rights. We urge the Senate to take up this bill to restore Americans’ ability to seek justice.”
The new legislation would be a boon for investors who are routinely corralled into forced arbitration clauses without knowing it, said Christine Lazaro, president of the Public Investors Arbitration Bar Association (PIABA).
“It will be helpful for investors because it prohibits pre-dispute arbitration agreements, which so often investors don’t even realize they’re signing,” said Lazaro, professor of clinical legal education and director of the Securities Arbitration Clinic at St. John's University School of Law in New York.
Signing the forced arbitration clauses “isn’t a conscious decision investors or employees are making to agree to this form of dispute resolution, and it’s not until something goes wrong that they realize that they give up their right to go to court,” Lazaro said.
Eliminating forced arbitration clauses would allow investors and employees to go to court, which they are prohibited from doing now, she said.