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Consumers who are wrongly nickeled and dimed by banks, credit card issuers, debt collectors and other financial service concerns could soon regain the right to band together and sue, thanks to a new rule announced by the Consumer Financial Protection Bureau.
The CFPB announced final rules on Monday that will bar companies that extend credit and collect debt from forcing consumers to give up their right to pursue class actions by contractually obligating customers to binding arbitration agreements. These arbitration agreements, once used primarily for disagreements between businesses, are now pervasive in the financial services industry, covering roughly half of all credit card and banking relationships.
"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," said CFPB director Richard Cordray at a press conference on Monday. "The real effect of mandatory arbitration clauses is to insulate companies from most legal proceedings altogether."
The reason is practical: If you were improperly charged a $35 overdraft or late fee, you're unlikely to spend thousands of dollars to hire an attorney and take the matter to court. Only 2 percent of consumers said they'd take their credit card company to court over a small-dollar dispute, according to a CFPB study. However, this same consumer might join a "class" of thousands of other individuals, who claim they were ripped off in the same way by the same company.
Indeed, consumer groups commonly refer to mandatory arbitration agreements as "rip-off clauses," because they bar group arbitration, as well as class actions. By keeping small-dollar disputes out of court, consumer advocates contend that wrongdoers are able to perpetuate with impunity nagging rip-offs that affect millions. However, bankers maintain that arbitration agreements can provide a low-cost way to resolve disputes.
Financial consumers may be able sue banks again - CBS News
The story goes on to state, "Some members of Congress are also attempting to legislatively curtail the CFPB's authority and replace Cordray with a less consumer-friendly chairman", and mentions a Republican congressman from Texas as being the staunchest opponent of the new rule.
I'm in favor of the new ruling, and am highly suspicious of any elected official who would favor bankers being able to cheat the public with legal immunity from lawsuits.