Congressional Republicans are trying to reverse a new rule that makes it easier for consumers to join together to file suit against financial institutions rather than be forced into arbitration.
The Consumer Financial Protection Bureau finalized the rule last week, which the bureau said would improve current practices where “companies can sidestep the court system, avoid big refunds, and continue harmful practices.”
The CFPB rule bans most types of mandatory arbitration clauses, which had become standard language buried deep in the fine print of financial product disclosures, including those for credit cards and checking accounts.
Consumer advocates have been pushing for stricter rules because they say most consumers never make it through the fine print and are unaware they are subject to arbitration.
“There’s no need for this anti-arbitration, anti-business rule,” said Senator Tom Cotton, R-Ariz., one of several Republican lawmakers who issued a statement in support of blocking the rule. “Today, we’re taking action to rein in this rogue agency.”
Republicans supporting the reversal, along with many banks, have challenged limitations to arbitration clauses, arguing that arbitration leads to quicker resolutions of legal disputes and that lawsuits too often lead to large payouts for trial lawyers and little left for the consumer.
A 2015 CFPB study found that larger numbers of consumers are eligible for financial relief following a dispute through class action settlements as opposed to using arbitration.
“From 2008 to 2012, at least 160 million class members were eligible for $2.2 billion in relief from financial wrongdoing after deducting attorneys’ fees — compared to less than $200,000 a year for a few dozen people awarded in arbitration,” said Lauren Saunders, associate director for the National Consumer Law Center. “The ink is barely dry on the CFPB rule that will restore consumer rights and Congress is already carrying water for Wall Street lobbyists to block it.”
Mark Greenblatt is Scripps News senior national investigative correspondent. You can email Greenblatt at email@example.com and follow him on Twitter at @greenblattmark.