For years now, consumers who use practically any type of financial product,
including credit cards, have been unable to file a class action lawsuit
against those financial institutions. Instead, consumers have been forced
to use arbitration to settle any type of alleged misconduct on the part
of the financial institution. Arbitration clauses are generally tucked
away in the fine print of contracts customers typically sign when opening
an account or making a purchase.
In fact, the majority of consumers probably don’t even realize they
have given up the right to file a class action lawsuit until an issue
arises. Under the proposed rules, however, while arbitration clauses would
not be entirely eliminated, those clauses would not be able to be used
to prevent consumers from joining in a class action lawsuit.
Banking Institutions Fiercely Oppose Proposed Rule
The proposed rules were, predictably, met with fierce opposition from financial
groups. The U.S. Chamber of Congress even called the proposed rule a “wolf
in sheep’s clothing,” saying the very agency which is charged
with protecting American consumers were trying to pass a rule which would
actually hurt them. According to Richard Cordray, director of the Consumer
Financial Protection Bureau, these financial groups are simply attempting
to avoid accountability.
Rob Nichols, president of the American Bankers Association, argues the
new rules will only increase legal costs, and result in frivolous class
actions suits in which attorneys will make more money than the consumers.
The proposed rules do not require congressional approval, and it is unclear
whether industry groups will be able to block the required rules.
The Problems Associated with the Arbitration Process
The CFPB estimates that currently tens of millions of consumers are subject
to arbitration clauses, yet fewer than 25 percent of those consumers are
aware of the clauses. When class action lawsuits are banned, consumers
are much less likely to challenge companies in court. Many critics of
the arbitration process say the process is far from fair, and that arbitrators
who decide the cases could have a financial incentive to side with the
corporations who hire them.
Arbiters have no requirement to consider the facts of preceding cases or
to even follow the law when making decisions in an arbitration, plus consumers
are given little to no opportunity to appeal an adverse decision. At this
point, it is difficult to know whether consumers or corporations will
come out ahead, should the proposed rules be implemented, primarily because
the outcome of most arbitration cases are private, with consumers required
to sign confidentiality agreements.
Mandatory Reporting of Arbitration Results Proposed
The CFPB is also hoping to bring transparency to the entire process by
requiring companies to report arbitration results to the agency. If the
CFPB is able to make reporting arbitration reports mandatory, regulators
and consumer groups would have an easier time spotting issues which could
potentially be harmful to consumers. Payday loan businesses, credit card
companies and credit unions, and banks would all be bound by these proposed
rules. Unfortunately, the protections afforded consumers would apply only
to new accounts after the rules go into effect, rather than existing accounts.
Before a final draft of the rule can be reviewed by the Office of Management
and Budget, there will be 90 days in which feedback will be collected.
Few Consumers Pursue Legal Action
By all accounts, class action lawsuits, rather than arbitration, have more
benefit to consumers who normally would not pursue legal action for a
relatively small amount of money. A CFPB survey, done in 2015, found that
only 2 percent of all consumers would pursue legal action as a method
of resolving small disputes. To back this up, only 505 consumers made
the decision to enter arbitration over disputes less than $2,500 between
2010 and 2014.
Contact Our National Consumer Protection Lawyers
Contact the national consumer protection lawyers at Golomb & Honik,
P.C. today at
(215) 278-4449 or fill out an online
Contact Form. We have successfully fought credit card companies, banks, and financial
institutions and protected consumer rights for decades. Call us today
for a review of your case.