Consumer Financial Protection Bureau to Allow Class Actions in Bank and Credit Disputes

Public Health Watchdog Breaking News
Public Health Watchdog Breaking News

On July 10, 2017, the federal Consumer Financial Protection Bureau adopted a rule that would allow consumers to band together to file class action suits in disputes with financial firms.

The new rule would “unwind” a series of legal maneuvers that block customers from going to court to fight potentially harmful business practices, the New York Times reports. Currently, customers are forced into arbitration in disputes involving bank accounts and credit card accounts.

In a statement, Richard Cordray, director of the Consumer Financial Protection Bureau, said, “A cherished tenet of our justice system is that no one, no matter how big or how powerful, should escape accountability if they break the law.”

The new rule could take effect next year, but is likely to set off a “political firestorm,” the Times says. Both the Trump administration and Republicans in the House of Representatives have pushed to weaken the consumer finance agency as part of wider efforts to reduce regulation on the financial industry.

Parker Waichman has represented clients in a wide range of class actions, from defective drugs and devices, to products and services. The attorneys at the firm will investigate possible class actions and offer a free consultation.

Texas Representative Jeb Hensarling says Congress should reject the rule under the Congressional Review Act. Hensarling is one of the leaders in the effort to weaken the agency. Under the Congressional Review Act, a 1996 law, legislators have about 60 legislative days to overturn the rule blocking mandatory arbitrations. Mr. Hensarling has threatened contempt proceedings against Mr. Cordray for failing to comply with a subpoena related to the CFPB work on the arbitration issue.

But, the Times notes, Congressional Republicans may find it difficult to kill a rule that could have wide appeal to the public. Arbitration clauses have been widely criticized because they allow corporations to get around the courts and such clauses take away a tool to fight abusive business practices.

The rule would take effect 60 days after its publication in the Federal Register. This rule does not explicitly outlaw arbitration, but industry lawyers say it will effectively kill the practice. The new rule would not apply to existing accounts, but a consumers could pay off old loans and get new accounts that would fall under the new rule, the Times reports.

Arbitration Clauses

To stop the spread of class-action lawsuits, a group of credit card companies used a 1925 federal law that formalized arbitration as a way to resolve corporate disputes. In the early 2000s, credit card companies began to use arbitration to resolve disputes with their customers.

Today, virtually every credit card agreement, car rental contract, and many other service or purchase agreements require the consumer to agree to private arbitration in case of a dispute. As arbitration clauses proliferated, some judges, prosecutors, and legislators began to raise concerns. But the financial industry argued that individuals often wind up with more money in arbitration than in class actions. More important, supporters of class actions say, class actions can push companies to get rid of questionable business practices.

Over time, financial institutions have found ways to force consumers into private arbitration of disputes. Proponents of arbitration say it is a faster more efficient way to settle legal disputes like the typical disputes involving bank accounts and credit cards.

But arbitration is a secretive process that pits consumers against powerful companies with considerable resources. Many people abandon their claims even before they come to arbitration because they do not have the resources to fight a large corporation. A class action allows a group of people to pool resources in pursuit of their claims.

Among the class actions halted by arbitration was a case brought by Citigroup customers who alleged the bank tricked them into purchasing insurance they were never eligible to use. In another instance, a group of merchants challenged American Express over high processing fees. With class actions are barred by arbitration clauses, companies, in essence, were able to quash challenges to wage theft, sexual discrimination, medical malpractice and wage theft, the Times notes.

The federal government does not maintain records of arbitrations, so in a 2015 investigation, the New York Times collected data on arbitrations. The Times database showed that few people ever go to arbitration. From 2010 to 2014, only 505 consumers out of the tens of millions who have financial contracts with arbitration clauses went to arbitration over disputes of $2,500 or less.

In addition to financial firms, many nursing homes and rehab facility contracts include arbitration clauses. Residents and their families say serious cases abuse, neglect, sexual harassment, assault, and even wrongful death disputes are relegated to arbitration. Many nursing home and rehab admissions are the result of a health crisis, and the individual and the family do not have the option to pursue a lengthy dispute over an arbitration clause.

The federal agency that controls Medicare and Medicaid funding (which covers many nursing home residents) proposed a rule last September that would have barred any nursing home that gets federal funding from requiring residents to sign an arbitration clause. But the Trump administration has moved to scrap that rule.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau was created in 2010 under the Dodd-Frank financial regulatory reform bill. The Dodd-Frank overhaul legislation was passed in the aftermath of to safeguard the rights of millions of Americans in the aftermath of the 2008 mortgage crisis and the wider financial crisis that gripped the country at the time.

In the Dodd-Frank law, the consumer agency was specifically charged with examining arbitration. The CFPB issued a 728-page report in March 2015. The report showed how few consumers went to arbitration once they were prevented from joining a class action. And for those who did go through with arbitration during the period studied, only 78 arbitration claims resulted in judgments in favor of consumers, with total relief of $400,000.

The Chamber of Commerce called the CFPB “an agency gone rogue,” the Times reports. Pro-business groups, including the chamber, call the rule as a gift to class-actions lawyers, who tend to be Democratic donors. In June, the Treasury Department issued a report recommending that the Consumer Financial Protection Bureau be held in check, accusing it of regulatory overreach and calling for the president to be able to remove its director.

Economic Losses Because of Arbitration Clauses

If you or someone you know has suffered economic losses because of a financial firm’s policies or an arbitration clause, the attorneys at Parker Waichman may be able to help you get compensation. For a free, no-obligation evaluation of your legal rights, fill out the online contact form or call 1-800-YOURLAWYER (1-800-968-7529).