easier for people to challenge financial companies in court.
Under the long-awaited rule from the Consumer Financial
Protection Bureau, companies will be banned from using agreements that block
consumers from joining group lawsuits. The rule also aims to increase awareness
about how consumers fare when they go to arbitration, since companies will be
required to report those outcomes to the CFPB.
“In practice, companies use these clauses to bar groups
of consumers from joining together to seek justice by vindicating their legal
right,” said Richard Cordray, director of the Consumer Financial
Protection Bureau, during a call with reporters.
The agency is targeting arbitration clauses, little known
agreements that are frequently tucked into the fine print for credit cards,
bank accounts and other consumer products.
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As a condition for doing business, consumers often have to
sign away their right to join a class-action lawsuit, agreeing instead to
settle any disputes in a private process known as arbitration. Cordray
acknowledged Monday that the rule, which doesn’t ban arbitration clauses
completely, is likely to face fierce opposition from Republicans seeking to
“nullify” the regulation.
The final rule was announced at a time when the Trump
administration is undergoing a broad effort to overhaul Obama-era regulations
affecting other aspects of consumers’ financial lives, including their health
insurance, overtime pay and the investment advice they receive when saving for
Supporters of the approach say the clauses can help
companies and consumers save money by minimizing legal costs. They also say
that many consumers have their disputes resolved fairly through arbitration,
sometimes receiving more relief when they go through arbitration than when they
take part in class-action lawsuits.
“This is a boon to the trial lawyers and a bust for
consumers,” Richard Hunt, president of the Consumer Bankers Association
that represents retail banks, said in an interview.
Cordray said Monday that class-action lawsuits can help
increase awareness about harmful business practices that might not receive much
attention when they are addressed through arbitration, since companies were not
previously required to report those cases.
The director also said class-action lawsuits can be a way
for consumers to seek relief when they are owed small dollar amounts and cannot
afford to hire a lawyer. “Very few people have the time or the money to
fight on their own over a small amount of money,” Cordray said.
The CFPB, which was created under the Dodd-Frank Act, is
facing intense scrutiny from Republicans and business groups who are calling
for Cordray to be fired and who argue that the agency has too much power.
agency is awaiting a decision on a court case that centres on whether the
president should be able to fire the agency’s director at will, as opposed to
the current structure that says the director can only be removed for cause.
The agency has stayed busy since the election, rolling out
enforcement actions against companies that it says have misled or overcharged
consumers. The targets included well-known names, such as the credit reporting
bureau Experian, mortgage company Ocwen and student loan servicer Navient.
The rule is expected to be published in the federal register
in the next week or two. It will take effect 241 days, or about eight months,