By prohibiting class action bans, the rule will restrict financial industries’ use of forced arbitration—a tactic big banks, payday lenders and other companies use (often by burying it as a clause “in the fine print” of their contracts) to deny consumers their day in court.
San Francisco-based Consumer Action (CA) says in a horribly anti-consumer practice, financial services have inserted binding ‘class action bans’ in their consumer contracts. The CFPB has drawn a line in the sand, making these prohibitions on collective redress illegal.
The announcement is the result of a five-year CFPB study on the effect of forced arbitration on consumers.
CA says it has urged the CFPB to go even further and ban the use of mandatory arbitration clauses in financial contracts for the companies it regulates. However, it anticipates this moderate rule will be strongly challenged by industry lobbyists pushing members of Congress to once again choose Wall Street interests over Main Street.
Consumers who receive any relief through arbitration claims recover only 12 cents, on average, for every dollar claimed. In contrast, 93 percent of companies win in arbitration, receiving an average of 98 cents on the dollar, according to the CFPB study.
In addition to prohibiting class action bans, the new CFPB rule will also return transparency to individual arbitration cases by establishing a record of claims and outcomes.