The top U.S. consumer financial regulator proposed a rule Thursday that would make it easier for ordinary consumers to file class-action lawsuits against their banks, rather than seek a resolution through mandatory arbitration.
Most U.S. bank customers relinquished their right to sue when they signed credit card agreements, bank accounts and insurance policies without reading the fine print.
The Consumer Financial Protection Bureau, wanting to to put a stop to that, proposed a rule that would ban arbitration clauses. The ban would only apply, though, when consumers want to join or create a class-action lawsuit.
If adopted, the rule could cost the financial industry hundreds of millions or even billions of dollars.
"Many banks and financial companies avoid accountability by putting arbitration clauses in their contacts that block groups of their customers from suing them," CFPB Director Richard Cordray said. Such clauses effectively deny groups of consumers "the right to seek justice and relief for wrongdoing."
Consumer advocates say arbitrators routinely rule against consumers, but the financial industry argues arbitration is a more efficient way for customers to resolve disputes with banks.
A CFPB study confirmed that arbitration is more efficient but found customers rarely filed lawsuits to settle small claims. The study also showed that when large numbers of customers were adversely affected by the same issue, arbitration hindered their ability to seek relief.
The study found that 15 of the largest 20 credit card companies had arbitration clauses in their agreements, and disputes involving about half of all large bank accounts and nearly all prepaid credit cards and payday loans required arbitration.
Once the CFPB rule is published, the public will have 90 days to comment. The rule will go into effect next year if it is adopted.