Consumer bureau issues rule making it easier for consumers to sue banks

The Consumer Financial Protection Bureau (CFPB) announced Monday (July 10) a new rule to ban companies from using mandatory arbitration clauses to deny groups of people their day in court.

Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. By forcing consumers to give up or go it alone — usually over small amounts — companies can sidestep the court system, avoid big refunds, and continue harmful practices.

The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” CFPB Director Richard Cordray said in a statement. “These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

The rule’s effective date is 60 days following publication in the Federal Register and applies to contracts entered into more than 180 days after that.

U.S. Sen. Tom Cotton, R. Ark., issued the following statement Tuesday (July 11) on the new rule:

“The CFPB has gone rogue again, abusing its power in a particularly harmful way. The Bureau’s new rule on arbitration clauses ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests. This morning I’ve started the process of rescinding this rule using the Congressional Review Act. The last thing Americans need is more anti-business regulation that will prompt frivolous lawsuits while hurting consumers.”

More information on the new arbitration rule is available here.