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  • Writer's pictureLeslie A. Farber

What the new proposed rule from the Consumer Financial Protection Bureau means for you

Updated: Jul 3, 2019

The Consumer Financial Protection Bureau (CFPB) recently proposed a new rule that would allow consumers to bring class-action lawsuits against financial institutions.

A class-action lawsuit is one in which a group of people with the same or similar injuries caused by the same item or action sue the defendant as a group. Class-action lawsuits are commonly used when a large number of people have suffered the same injury. They are a way for consumers whose claims are too small or resources too limited to take on corporations alone to seek justice.

According to the a CFPB survey of credit card customers, only 2% said they would take legal action to resolve a small-dollar dispute. So while it might not make sense for a customer to file a lawsuit for a $50 bank fee discrepancy, if that same fee discrepancy applies to hundreds or thousands of customers, then a class-action lawsuit might make sense. Class action lawsuits are often filed for injuries caused by such things as defective products, consumer fraud, corporate misconduct, and employment practices.

Companies, in particular, financial institutions, saw that lawsuits could be unpredictable and expensive and began inserting mandatory arbitration clauses into the fine print of contracts, effectively preventing lawsuits of any kind. These arbitration clauses show up in everything from credit cards and employment applications, to software updates and student loans. According to Richard Cordray, director of the CFPB, most consumers "don't realize that in their contract may be buried an arbitration clause, which dictates how any dispute would be handled."

Arbitration clauses have proven to be a way for companies to “sidestep the legal system, avoid big refunds and continue to pursue profitable practice that may violate the law and harm consumers.” They do not serve the customer well. Only 9% of consumers who took on financial institutions received any relief at all.

As the Huffington Post so eloquently puts it, mandatory arbitration “means that if the company cheats, defrauds, discriminates against, physically injuries or otherwise harms you, you cannot sue the company in court or have a jury trial. Or to put it another way, big corporations have decided that it’s better for you if you are forced to resolve your disputes in rigged, secretive tribunals, where the arbitration provider is picked by the company that harmed you, and there’s no appeal.”

The 2010 Dodd-Frank financial overhaul banned forced arbitration clauses from residential mortgages and now the CFPB is seeking to eliminate forced arbitration from a wide range of products and services, such as credit cards, checking and deposit accounts, some auto loans, payday loans and private student loans. In addition to eliminating forced arbitration, the CFPB’s new rules would require companies to keep track of all customer claims filed and submit results of arbitration cases to the agency.

The rule is currently in a 90-day public comment period, but it does not need congressional approval and most believe it will be implemented. The new rules, if implemented, will only apply to future customer agreements.

If you have any questions about this ruling or any other legal issue, please contact the Law Office of Leslie Farber.

The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.

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