The Consumer Financial Protection Bureau (CFPB) has established a new rule that allows consumers to file a class action suit against banks and credit card companies.
Specifically, the CFPB rule eliminates the arbitration clause, which block people from bringing or joining group lawsuits, also known as “class action lawsuits.” No matter how many people are harmed by the same conduct, most arbitration clauses require people to bring claims individually against the company, outside the court system, before a private individual (an arbitrator).
The CFPB said that companies know that people almost never spend the time or money to pursue relief when the amounts at stake are small, so few people do this.
The new rule will restore the ability to file class action suits. In some cases, not only will companies have to provide relief, they will also have to change their behavior moving forward.
The ruling drew a mixed reaction on Capitol Hill. U.S. Sen. Sherrod Brown (D-OH) applauded the move.
“Ohio consumers deserve the ability to seek relief through the justice system when they’ve been wronged by a bank or payday lender. But too often, banks rob consumers of this ability through forced arbitration clauses snuck into their contracts. This has to stop,” Brown said. “This unfair tactic rips off consumers and leaves them with no place to turn for relief.”
House Financial Services Committee Chairman Jeb Hensarling (R-TX) is strongly opposed to the rule, saying that Congress must work with President Trump to reform the CFPB.
“As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” Hensarling said. “In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives.”
Banking groups are also against it.
“Arbitration has long provided a faster, better, and more cost-effective means of addressing consumer disputes than litigation or class action lawsuits,” Consumer Bankers Association President and CEO Richard Hunt said. “The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit. The real benefactors of the CFPB’s arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit. By only using fuzzy math is the CFPB able to interpret these figures as favorable to consumers. Given the longstanding benefits of arbitration, we encourage Congress to move swiftly and overturn this anti-consumer rule.”
American Bankers Association President and CEO Rob Nichols said the rule favors lawyers over consumers. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration,” Nichols said.
He said arbitration is an efficient and fair method of resolving disputes at a fraction of the cost of expensive litigation, which helps keep costs down for all consumers.
“Despite acknowledging these benefits in its own study, the bureau has chosen to write a rule that would essentially eliminate arbitration – and force consumers into court – by requiring companies to face a flood of attorney-driven class action lawsuits from which consumers receive virtually nothing. Under this final rule, consumers lose,” Nichols said.