11 July, 2017
Because consumers generally don't carefully read the fine print on the agreements for their checking accounts and credit cards, they are often unaware they are subject to arbitration. Incredibly, Wells Fargo has argued that mandatory arbitration clauses on its actual accounts prevent its customers from bringing class actions against its millions of fake accounts. "Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration".
According to a CFPB study of 562 class actions, the average cash settlement was $32.35 per consumer, and class action litigation took an average of two or more years.
The rule does not bar arbitration clauses outright. Financial companies will still be able to force individuals to settle disputes through arbitration, but those kinds of cases are far less common.
Financial trade groups protest this oversteps the bounds of what the Consumer Financial Protection Bureau is supposed to to do, while some of the industry's supporters in Congress have branded it a big wet kiss to class-action attorneys. The clauses have been inserted routinely in contracts for credit cards, payday loans and other products.
The rule applies to most companies that lend or handle money for consumers - like banks and credit card companies - with some exceptions.
"The real benefactors of the CFPB's arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit", said Richard Hunt, the President of the Consumer Bankers Association in a statement.
Congressional Republicans have been using a '90s-era law known as the Congressional Review Act to roll back regulations issued in the final months of Obama's administration.
"I am, of course, aware of those parties who have indicated they will seek to have the Congress nullify this new rule", Cordray said in prepared remarks. But he also said that the rule is in the public interest as it protects consumers' right to a day in court, which can deter companies from predatory practices.
The rule will also require companies to submit information about claims and awards issued in arbitration to the CFPB, which will publish the information on its website starting in July 2019.
"The idea of the CFPB needs no defense, only more defenders".
