Pending Regs

Consumer bureau: Proposed rule protects right to sue

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The Consumer Financial Protection Bureau (CFPB) wants to prohibit companies from denying consumers the right to band together to settle disputes in court.

Under a proposed rule, which the agency plans to announce at a field hearing in Albuquerque, N.M., on Thursday, companies would be prohibited from including mandatory arbitration clauses in financial contacts that deny consumers the right to join class action lawsuits.

{mosads}Contracts for financial products like credit cards and bank accounts often include language in the fine print that forces consumers to settle disputes privately an arbitrator that’s often chosen by the company rather than through the court system. Those clauses often prohibit consumers from joining class action lawsuits as well. 

“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,” CFPB Director Richard Cordray said in a statement. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them.”

Under the proposed rule, companies that use arbitration clauses will be required to submit all claims, awards and certain related materials that are filed in arbitration cases to the CFPB. The records requirement is so the agency can ensure the arbitration process is fair to consumers.

CFPB said it’s also considering publishing the information it collects so the public can monitor the arbitration process as well.  

Consumer rights attorneys praise the rule they claim consumers with small dollar disputes need most. 

In a press call with reporters organized by the American Association for Justice on Wednesday, Deepak Gupta, a principal at the law firm Gupta Wessler PLLC, said arbitration clauses don’t move claims to a cheaper faster, forum, as companies have claimed; instead, millions of consumer claims that would have been vindicated by group litigation simply disappear. 

In a March 2015 report, CFPB found that of the 52 disputes filed in 2010 and 2011 that involved consumer affirmative claims of $1,000 or less, arbitrators resolved 19, granting affirmative relief to consumers in four disputes. 

“Only four in the bureau’s study received affirmative relief under $1,000,” Gupta said. “That show you it completely belies the industry’s claim that these claims are being vindicated somewhere else.”

The U.S. Chamber of Commerce, however, called CFPB’s proposed rule the biggest gift to plaintiffs’ lawyers in a half century. 

“In the 50 years since the advent of modern day class action lawsuits, plaintiffs’ lawyers have made millions of dollars in fees from these suits while consumers often receive little benefit. With this rule, the CFPB doubles down on that trend,” Chamber Institute for Legal Reform President Lisa Rickard said in a joint statement with Chamber of Commerce Center for Capital Markets Competitiveness President and CEO David Hirschmann. 

The chamber argues that arbitration “empowers consumers to resolve disputes easily and quickly on their own without having to hire a lawyer,” a benefit it claims will be lost as a result of the rule. 

 “Effectively eliminating arbitration has been the plaintiffs’ lawyers top priority for several years,” Rickard and Hirschmann said. “Unable to accomplish this through legislation, they have enlisted the CFPB to do it through regulation.”

According to fact sheets The Consumer Bankers Association released Wednesday, arbitration cases take on average two to seven months, while class action lawsuits take on average 690 days. 

The bankers association also claims that class action lawsuits cost more due to attorneys fees than arbitration cases, which have a $200 cap on filing fees. 

“Although the bureau’s study on arbitration is the most extensive one conducted to date, it is incomplete and should not be used as a basis for restricting arbitration,” the association said. “The study did not consider the vast majority of disputes settled through internal company processes.”


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