In a regulatory environment that has lately favored big business over the average American consumer, the underdog got a rare win this week. The Consumer Financial Protection Bureau, an independent federal watchdog group, issued a rule on July 10 that will limit the ability of banks, credit card companies, and other financial institutions to force consumers into arbitration over account disputes.
The rule is the result of years of research and review mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
What is an Arbitration Clause?
More Americans have bank accounts than ever before. Seven out of ten Americans also have a credit card. But very few of them have read the fine print they commit to when they sign on the dotted line. A critical part of that fine print is what is called an arbitration clause, which typically bars the consumer from filing or joining lawsuits against the bank or credit card issuer. Instead, these clauses, which began appearing in the early 2000s, force the aggrieved consumer to arbitration, a process that tends to favor the banks. Only about a quarter of these clauses include opt-out provisions.
Sadly, three out of four consumers have no idea about these clauses, what they mean, or that they have contractually committed to them. It is no wonder because these clauses average over 1,100 words of legalese in hard-to-read type. As a result of contract terms requiring arbitration, very few consumers are able to bring a claim when they think they have been wronged by their financial institution. In fact, after combing through five years of arbitration data, The New York Times found that from 2010 to 2014, only about 500 consumers — out of the tens of millions of consumers affected – made it to arbitration over disputes of less than $2,500.
With this new rule, consumers can now join forces against financial institutions to fight back for their rights. It is something they desperately want. According to research from Pew Charitable Trusts, 89 percent of consumers said they wanted to be able to take part in class actions lawsuits against banks and credit card companies.
“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB Director Richard Cordray said in a statement. “These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”
The Arbitration Fight is Just Beginning
U.S. Sen. Tom Cotton, R-Arkansas, who sits on the Senate Banking Committee, has already come out against the new rule. He has already announced that he has begun drafting a resolution to kill it.
“This morning I’ve started the process of rescinding this rule using the Congressional Review Act. The last thing Americans need is more anti-business regulation that will prompt frivolous lawsuits while hurting consumers,” Cotton said in a statement.
The Congressional Review Act he refers to gives lawmakers 60 days to reverse any federal agency rule.
U.S. Rep. Jeb Hensarling, R-Texas, also came out swiftly against the rule, telling The New York Times that it “should be thoroughly rejected by Congress under the Congressional Review Act.”
The U.S. Chamber of Commerce, which frequently lobbies on behalf of big banks, also criticized the new rule, and the CFPB itself, with a statement that declared, “The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue.”
The Rule Restores Rights, Prevents Abuse
Forced arbitration clauses have kept consumers locked into unfavorable agreements and violated their rights while shielding big banks, credit card companies, and predatory lenders from accountability.
A tragic example of this is the Wells Fargo scandal that came to light last year when the banking giant admitted to creating more than two million “fake” accounts in their customers’ names without their knowledge or consent. When those customers later tried to sue, Wells Fargo argued the arbitration clauses in their original accounts prevented them from doing so.
If the CFPB’s new rule survives, it will take effect in the spring of 2018.
If you are stuck in a dispute with your bank, credit card company, or payday lender, you need to speak to a Colorado mass tort attorney for help immediately. Call Burg Simpson as soon as possible at 303-792-5595 or fill out our Free Case Evaluation right now.