It May Get Easier to Sue Your Bank

October 8, 2015, Written By John H. Oldshue
Law and justice concept, legal code

It is currently very difficult for individuals to sue a financial institution because of an arbitration clause that appears in most contracts. This week, the Consumer Financial Protection Bureau (CFPB) announced it was considering a number of proposals to change that.

Many consumer financial product contracts, including those signed for student loans, credit cards, and bank accounts, contain language that requires any dispute between an individual and a company to be heard by an arbitrator instead of through the traditional court system. Generally, the language also bars consumers from joining together to file an arbitration claim or lawsuit against financial firms.

The CFPB calls this clause a “free pass” that allows companies to “sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm countless consumers.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the effects of these arbitration clauses. The Bureau concluded the language of these contracts “restrict consumers’ relief for disputes with financial service providers by allowing companies to block group lawsuits.”

In the same study, the CFPB also found that 75% of the consumers surveyed did not know whether there was an arbitration clause in their contract, and fewer than 7% knew this clause would restrict their ability to file suit in court.

The proposals under consideration would not ban the arbitration clause entirely. Rather, the language would be revised to state that they do not apply to potential class-action lawsuits unless a judge denies that status or dismisses the claims.

The proposed rule would also require companies to provide the CFPB any information regarding claims filed by consumers and the amount of awards issued. The organization will then post that information to keep the arbitration process fair.

These new rules, if enacted, would affect any financial product or service overseen by the CFPB, including credit cards, bank accounts, prepaid cards, money transfer services, auto loans, payday loans, private student loans and other installment loans.

The CFPB will meet with a group of small business representatives in Denver to discuss the proposal this week.

The information contained within this article was accurate as of October 8, 2015. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.