CFPB Takes Action Against Arbitration Platform Ejudicate for Deceiving Student Borrowers
Company claimed to be a neutral party but was actually a debt collection tool for the creditor
Today, the Consumer Financial Protection Bureau (CFPB) banned private dispute resolution platform Ejudicate from arbitrating disputes about consumer financial products after the company misled student borrowers about its neutrality and initiated sham arbitration proceedings. Ejudicate initiated those proceedings for the company Prehired, which was permanently shut down in 2023 by the CFPB and several state attorneys general for its illegal lending practices. Ejudicate acted as a service provider to Prehired by providing these sham arbitration services. The CFPB found that Ejudicate treated borrowers unfairly and was not truthful about its role while hiding that its financial interests were aligned with Prehired.
“Ejudicate ran bogus arbitration proceedings, deceived borrowers, and hid its financial conflicts of interest,” said CFPB Director Rohit Chopra. “Arbitration outfits cannot rig the process against consumers to enrich their corporate clients.”
Ejudicate is a private arbitration company based in Los Angeles, California that provides an online dispute resolution platform. One of the companies that bought Ejudicate’s services was Prehired, which operated an online vocational training program and offered “income share” loans to students before it was shut down by the CFPB and state attorneys general. When Prehired’s deceptive debt collection practices first came under scrutiny, Prehired unilaterally changed the terms of its contracts to force consumers into arbitration through Ejudicate.
In April 2022, Ejudicate illegally started arbitration proceedings against consumers who had allegedly defaulted on loans from Prehired and misrepresented itself to those borrowers. Specifically, the CFPB found that Ejudicate harmed borrowers by:
Falsely claiming to be a neutral arbiter: The company described itself as “neutral and unbiased” in communications with consumers, despite its financial interest in consumers settling with Prehired. Prehired promised to pay Ejudicate contingency fees for each claim that it settled.
Unfairly attempting to bind consumers to sham proceedings: Ejudicate required consumers to “agree” to its terms of service, which purported to bind consumers to Ejudicate’s dispute resolution process, even if consumers simply wanted to review the claims against them. Ejudicate’s bogus process left student borrowers with little opportunity to gather evidence or clarify facts needed to defend themselves against the claims lodged against them.
Starting arbitration proceedings without borrower consent: Although Ejudicate was aware that consumers had not agreed to arbitrate on the Ejudicate platform, it initiated arbitration proceedings for claims that each sought tens of thousands of dollars from student borrowers.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including service providers or firms providing substantial assistance to companies offering consumer financial products or services that engage in unfair, deceptive, or abusive acts or practices. Ejudicate acted as a service provider by knowingly allowing Prehired to initiate arbitration proceedings without consumers’ consent and by providing other advice and assistance. The CFPB’s order permanently bans Ejudicate from arbitrating disputes about consumer financial products or services. It also imposes a nominal civil penalty of $1 because of the company’s demonstrated inability to pay more.
Tackling Fine Print
Today’s enforcement action builds on previous CFPB work and guidance intended to promote freedom and fairness in consumers’ interactions with financial institutions. Earlier this year, the CFPB issued a circular warning that the use of unlawful or unenforceable terms and conditions in contracts for consumer financial products or services may violate the prohibition against deception. Last year, the CFPB proposed a rule to require certain supervised nonbank companies to register with the CFPB information about their use of contractual terms that claim to waive or limit consumer rights. The CFPB also has explained that banks and financial companies attempting to silence consumers from posting honest online reviews through contract terms undermine fair competition and may be breaking the law. And the CFPB filed an amicus brief with the Justice Department to help ensure that servicemembers can file lawsuits to enforce the Servicemembers Civil Relief Act notwithstanding unenforceable fine print in contracts.
