CFPB Makes It Legal to Sue Your Bank or Credit Card Company
The Consumer Financial Protection Bureau (CFPB) has ruled that credit card companies and banks can no longer use arbitration clauses to stop customers from filing class action lawsuits.
“These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up,” CFPB Director Richard Cordray said in a statement. “Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”
Many consumers are unaware that their credit card and bank accounts often carry an arbitration clause, as these are often buried in long, difficult-to-read contracts. But the CFPB says more than half of credit card companies and 44% of banks carry mandatory arbitration clause language in their terms of service.
Typically, these clauses demand that any disputes between customers and the entity be resolved in private before a mediator, which eliminates the possibility of a class action lawsuit. Initially, Wells Fargo had tried to use this clause to prevent class action lawsuits that were filed alleging the company opened accounts without customers’ consent. A judge rejected that argument, and the bank is now about to settle for $142 million.
The new rule, which is expected to go into effect in eight months, still allows companies to use arbitration clauses, but they cannot include language that blocks consumers from bringing class action lawsuits.
Under the rule, companies will also need to submit information about claims and awards issued in arbitration to the CFPB, which will begin publishing this information in July 2019.
Lawmakers will have 60 legislative days to overturn the CFPB’s decision. Many analysts believe Republican lawmakers will fight this new ruling.