The Consumer Financial Protection Bureau yesterday announced that it has banned the private arbitration company, Ejudicate, from arbitrating disputes involving consumer financial products. The announcement comes after Ejudicate was found to have misled student borrowers and initiated arbitration proceedings without consent, raising concerns for those in the debt collection industry, particularly those collecting on unpaid student loans.
What happened: The CFPB’s investigation revealed that Ejudicate, a Los Angeles-based private arbitration firm, engaged in deceptive practices in its dealings with borrowers of Prehired, LLC, a now-defunct company. Prehired was previously shut down by the CFPB and several state attorneys general for illegal lending practices tied to its “income share” loans. Ejudicate was found to have acted as a service provider to Prehired, conducting sham arbitration proceedings without proper authority.
- Deceptive Neutrality Claims: Ejudicate falsely presented itself as a neutral and unbiased arbiter, while concealing its financial ties to Prehired. The CFPB discovered that Ejudicate’s interests were aligned with Prehired, as the company earned contingency fees for each settled claim.
- Unlawful Arbitration Proceedings: Ejudicate initiated arbitration against 68 borrowers without their consent. Borrowers were forced into arbitration after Prehired unilaterally altered their contracts to require arbitration on the Ejudicate platform — an act done without borrowers’ approval.
- Consumer Harm: Ejudicate’s actions left borrowers with little opportunity to defend themselves. The platform barred traditional discovery methods like depositions and interrogatories, limiting borrowers’ ability to gather evidence. The arbitration process initiated by Ejudicate sought to bind borrowers to terms they had not agreed to, with many facing potential judgments of tens of thousands of dollars.
Between the lines: This action is part of a broader CFPB initiative to address unfair contract terms and arbitration practices in consumer financial services.
- Earlier this year, the CFPB warned that using unlawful or unenforceable contract terms may violate prohibitions on deception.
- The Bureau has also proposed rules requiring certain nonbanks to register information about contract terms that limit consumer rights.
