New rule bans restrictive arbitration clauses in bank customer contracts
If you have a bank account, chances are your bank has a contract clause that requires you to go through arbitration if you feel you've been harmed by company practices.
Your credit card company likely also has a mandatory arbitration clause that prevents you from joining with other consumers to take them to court.
Under the new Consumer Financial Protection Bureau rule, mandatory arbitration that blocks your right to particpate in a class action suit will be history.
As the CFBP's website video explains,
"By forcing people to go it alone or give up, companies can avoid accountability, and continue to harm people. Our new rule will stop companies from using arbitration clauses to deny people their day in court. It will ensure people who are harmed together, can take action together."
Consumer advocates point to the widespread fake account scandal at Wells Fargo is a prime example. New accounts were opened in the names of million of unsuspecting customers. Early on, customers who sued were reportedly challenged because of the mandatory arbitration clauses.
Amanda Werner, with the non-profit consumer advocacy group Public Citizen, says the arbitration clauses helped suppress outside knowledge about the extent of the problem for years.
"As opposed to a courtroom where everything's on public record, and people can read about it, press can find out about it, politicians can find out about it, in arbitration, everything is secret," said Werner.
In it's news release, the Consumer Federation of America emphasizes that the new rule only bans forced arbitration clauses that prevent you from joining other consumers to have your day in court.
“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America. “This is an important step of restoring law and order to the financial marketplace.”
But the American Bankers Association is already working to get the new rule overturned-insisting arbitration is an effecient and fair method of resolving disputes.
“We’re disappointed that the CFPB has chosen to put class action lawyers – rather than consumers – first with today’s final rule," said ABA President and CEO Rob Nichols in a statement posted on the organizations website.
"Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration. The Bureau’s own study found that arbitration has significant benefits over litigation in general and class actions in particular."
The ABA says consumers fare better in arbitration, than in a flood of attorney-driven lawsuits where they receive virtually nothing.
The banking industry group says it will urge lawmakers to overturn the ruling.