In July, the CFPB rule announced an administrative rule that limited companies’ ability to impose arbitration agreements on customers in financial contracts, thus making it easier for aggrieved consumers to join together in class action lawsuits. Supporters of the rule argued that it gave individual plaintiffs an important protection against mistreatment by banks. Banks lobbied vigorously against it.
Last week Congress voted with the banks, tossing out the new rule under the provisions of the Congressional Review Act. That statute allows lawmakers to undo administrative regulations within 60 working days of the date they are announced. Congress also blocked the CFPB from establishing a similar rule in the future. Reaction on both sides has been swift and passionate.
Few bank customers are even aware that they have agreed to arbitrate disputes when they sign (generally without reading) a checking account or credit card application. Not all banks include this clause in the fine print; some make arbitration optional. But banks that do not require arbitration can certainly be counted on to do it now.
For consumers who believe that their bank overdraft fees are unfair because Wells Fargo, Capital One or Fifth Third have reordered charges to maximize the fees they can collect, the problem is practical. The cost of individual arbitration, like the cost of an individual lawsuit, can be huge. It makes no sense to fight when the size of the potential recovery is small. So the abusive practice continues. Collective action is the only realistic option for redress against a deep-pocketed opponent, like a bank.
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The damage is likely to be mostly prospective. To the extent that courts have already reviewed mandatory arbitration provisions in existing consumer agreements, those rulings are likely to stand. The problem is what will happen in the future when consumers complain that they are being hit with excessive overdraft fees.