The nation’s consumer watchdog is adopting a rule on Monday that would pry open the courtroom doors for millions of Americans, restoring their right to bring class-action lawsuits against financial firms.
Under the Consumer Financial Protection Bureau rule, banks and credit card companies could no longer force customers into arbitration and block them from banding together to file a class-action suit.
The change would deal a serious blow to Wall Street and could wind up costing financial firms billions of dollars.
More immediately, its adoption is almost certain to set off a political firestorm in Washington, where both the Trump administration and House Republicans have pushed to rein in the consumer finance agency as part of a broader effort to lighten regulation on the financial industry.
Under the Congressional Review Act — a 1996 law that had been rarely used before the current Congress employed it to reverse 14 rules from the Obama administration — lawmakers have 60 legislative days to overturn the rule blocking mandatory arbitrations. The rule could take effect next year.”
This is a huge deal — binding arb. clauses have been a major vehicle for big banks and other financial companies to basically disenfranchise consumers of legal process, and thus, steamroll and rip them off more generally. They are, essentially, adhesion contracts (i.e., you have no power to influence, let alone re-negotiate the contract, because they’re all doing the same thing). Of course, Trump and many Republicans will try to kill this — even though we’re really talking about bread-and-butter rights and market machinery, and putting a force back into play that could significantly lessen the burden of rules-based regulation…
For more color on this, see the following excerpt:
To get beyond the anecdotal, The New York Times assembled its own database of arbitrations in a series of articles in 2015 that showed few people ever go to arbitration.
In financial disputes, the numbers are particularly startling. In its investigation, The Times found that between 2010 and 2014, only 505 consumers — a fraction of the tens of millions of Americans whose financial contracts have arbitration clauses — went to arbitration over disputes of $2,500 or less….
By banning class actions, companies essentially squashed challenges to practices that ranged from predatory lending and wage theft to sexual discrimination and medical malpractice.
Among the class actions derailed over the years by arbitration was a case brought by Citigroup customers who had accused the bank of tricking them into insurance that they were never eligible to use. In another, a group of merchants challenged American Express over high processing fees…