This New Proposed Rule Would Make It Easier To Sue Banks
The Consumer Financial Protection Bureau unveiled a proposed rule Thursday designed to make it easier for consumers to sue financial institutions, a move that potentially undermines a 2011 Supreme Court ruling on mandatory arbitration.
The rule would prevent companies from placing a mandatory-arbitration clause – which many banks and credit-card companies currently use – in new contracts to prevent consumers from filing class-action lawsuits. The clauses usually require consumers to work through an arbitrator on disputes with companies expect for cases that are taken to small claims court.
“Where these clauses exist, either side can generally block lawsuits from proceeding in court. These clauses also typically bar consumers from bringing group claims through the arbitration process,” the agency said of the rule. “As a result, no matter how many consumers are injured by the same conduct, consumers must proceed to resolve their claims individually against the company.”
In the Supreme Court’s decision on AT&T Mobility vs. Concepcion, justices upheld a ruling saying companies should be able to enforce their contracts consumers sign when buying products — effectively blocking class-action lawsuits.
The financial sector came out strongly against the rule, arguing it would result in a worse outcome for both businesses and customers alike.
“Consumers will get less and pay more if the CFPB’s proposal to sideline arbitration and promote class actions is ultimately adopted. Banks resolve the overwhelming majority of disputes quickly and amicably,” American Bankers Association CEO Rob Nichols said in a statement. “When needed, arbitration is an efficient, fair and low-cost method of resolving disputes in a fraction of the time — and at a fraction of the cost — of expensive litigation. This helps keep costs down for all consumers.”
According to Nichols, consumers will lead to consumers gaining less than they would with arbitration and will lead to an influx of group lawsuits companies will have to face.
The public comment period on the rule will be open for the next 90 days.
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