The CFPB issued proposed rules Thursday that would prohibitmandatory arbitration clauses in consumer financial products.

The agency said such clauses in contracts prevent consumers – including credit unionmembers – from joining together in a suit to accuse financialinstitutions of wrongdoing.

The proposal does not prohibit arbitration clauses, but itspecifies the language that may be used in clauses and emphasizesthe fact that consumers can file suit.

“With this contract gotcha, companies can sidestep the legalsystem, avoid accountability, and continue to pursue profitablepractices that may violate the law and harm countless consumers,”the agency said in a statement. “The CFPB’s proposal is designed toprotect consumers’ right to pursue justice and relief, and detercompanies from violating the law.”

CFPB Director Richard Cordray added, “Signing up for a creditcard or opening a bank account can often mean signing away yourright to take the company to court if things go wrong. Many banksand financial companies avoid accountability by putting arbitrationclauses in their contracts that block groups of their customersfrom suing them. Our proposal seeks comment on whether to ban thiscontract gotcha that effectively denies groups of consumers theright to seek justice and relief for wrongdoing.”

CUNA said because of their unique structure, credit unionsshould be exempt from the rules.

CUNA Chief Advocacy Officer Ryan Donovan said the rules are notappropriate for credit unions since they are member-owned,non-for-profit financial institutions with different incentives forresolving problems than for-profit institutions may have.

“Credit unions are owned by their members, and, asnot-for-profit financial cooperatives, have incentive to and a longhistory of prioritizing the needs of their members,” Donovan said.“As a result, credit unions face different dispute resolutiondynamics, and we believe the CFPB should take these differencesinto account by exempting credit unions when it releases its finalrule.”

He added that as voting members of their credit union, a groupof members can oust directors and officers by voting againstthem.

As part of its roll out of the proposed rules, the CFPB wasscheduled to hold a field hearing Thursday in Albuquerque, N.M., onarbitration clauses. Attorney Kevin Hammar of Aldridge, Hammar,Wexler & Bradle was expected to testify on behalf of CUNA.

In reaction to the proposed rules, NAFCU Director of RegulatoryAffairs Alexander Monterrubio urged the CFPB to avoid any rulesthat would unreasonably limit the use of arbitration or createburdensome reporting requirements.

“NAFCU is especially concerned with the CFPB’s plan to publishthe arbitration data it collects as such actions would presentsystem-wide reputational risk, meddle in the arbitration process,and create significant privacy issues,” Monterrubio said.

The proposed rules would only allow arbitration clauses if theystated that they cannot be used to keep consumers from joining in aclass action suit. The CFPB proposed specifying the language thatcredit unions must use. In addition, the rules would requirecompanies that have arbitration clauses to file informationregarding awards, claims and other material that are filed as partof arbitration agreements. The agency said it may consider makinginformation it would collect in that process public in an effort toallow consumers to monitor the process.

In a study released last year, the CFPB said more than 75% ofcredit card consumers didn’t know they were subject to anarbitration clause.

Late last year, CUNA pushed Congress to require the CFPB toconduct a new study that would be “new, fair and comprehensive.”However, Congress ultimately did not include such language in theomnibus appropriations measure that funded much of the federalgovernment.