The Consumer Financial Protection Bureau (CFPB) released a proposal taking away mandatory arbitration clauses that prohibit consumers from filing class-action lawsuits against banks, credit card companies and lenders when they encounter problems with financial products.
With mandatory arbitration clauses in place, consumers have no choice but to move forward with complaints on their own, a situation that pits an ordinary individual against a more powerful corporation. Unfortunately, most consumers don't realize that their rights are being violated by this practice.
"Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong," said Richard Cordray, CFPB director.
"Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing."
Aside from giving consumers their day in court in the event that they have complaints against their bank, credit card company or lending institution, the CFPB proposal is also designed to encourage compliance with the law. Arbitration clauses let companies avoid accountability, but that's all going to change with the proposal. Also, if companies are made aware that they can't get away with their misconduct, then they are less likely to engage in unlawful practices that put consumers at a disadvantage.
Under the proposal, financial institutions may still use arbitration clauses, but they have to explicitly state that they cannot be used to prevent a consumer from taking part in a class-action lawsuit. Additionally, the CFPB will be providing the exact words to be used in the arbitration clauses.
It was through the Dodd-Frank Wall Street Reform and Consumer Protection Act that Congress tasked the CFPB with evaluating the use of mandatory arbitration clauses in financial products. In 2015, the agency released a study detailing the results of its evaluation, where it found that at least 160 million consumers were eligible for some form of relief over the course of five years. This translates to settlements totaling $2.7 billion in attorneys' fees, in-kind relief and cash.
The CFPB proposal is now open for comment. The public has 90 days to send in its thoughts by mail, courier or electronically via email or through Regulations.gov.
Photo: Frankie Leon | Flickr
