For years, the fine print section of contracts, particularly in the financial services industry, has often asked consumers to sign away their right to group lawsuits and accept forced arbitration in the event of a dispute.
In the wake of the 2008 financial meltdown the Consumer Financial Protection Bureau (CFPB) did a very thorough analysis and compared the outcomes of class actions suits and arbitrations. In 2015 the CFPB released a study that showed consumers usually got the wrong end of the stick in forced arbitrations.
In addition, the CFPB said the arbitration process was secretive, it kept bad corporate behavior out of the headlines and allowed corporations to get away with small amounts of compensation when larger amounts were due.
Concerned about what it called “Contract Gotchas”, particularly in the banking and credit card industry, the Consumer Financial Protection Bureau is set to rebalance the relationship between consumers and corporations with some proposed new rules expected to take effect in the coming months.
Companies would be able to keep those fine print arbitration clauses but they will no longer be able to block consumer class action suits.
“Class actions serve important accountability purpose especially in the financial services industry as we just saw in the Wells Fargo recent accounts scandal where they opened as many as 3.5 million bogus accounts,” says Amanda Werner who works as an Arbitration Campaign Manager with Public Citizen and Americans for Financial Reform, two consumer advocate and public justice groups that are fighting potential threats to class actions.
“Generally when banks do something wrong they do it on a systemic level and restoring the right to class actions keep the financial sector accountable. Class actions scare banks and lenders because they know they are going to subject to more scrutiny than they have in the past,” she says.
The new arrangement is not popular with corporations or the US Chamber of Commerce. They consider class action suits to be “too broad” and an “abuse” of the system that costs American business millions of dollars every year. The Chamber is in full support of the Fairness in Class Action Litigation Bill which recently passed through Congress and is awaiting a hearing in the Senate. Critics say it would collar class actions by saddling litigants with very tight restrictions.
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Consumer advocate Amanda Werner also points to the Congressional Review Act (CRA). She says it has been used to get rid of a number of Obama era regulations and could also be used to derail the changes the CFPB has in mind regarding forced arbitration. “As soon as the CFPB rule comes into effect legislators could use the CRA to get rid of it.”
“We are watching that very closely. The really dangerous thing about that is that it only requires 51 votes and also allows them to get around the filibuster rules. We are definitely talking to people on the Hill right now and shoring them up to make sure Republicans can’t come after the CFPB’s Arbitration rule,” says Werner.