Fight over CFPB arbitration rule may just be starting

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The Consumer Financial Protection Bureau chose to ban most types of mandatory arbitration clauses, which require credit card or bank customers to use a mediator when they have a dispute - often giving up their right to sue in court. But companies about 25 years ago started adding such clauses to their consumer contracts to block group lawsuits and avoid legal accountability.

"Arbitration clauses in contracts for products like bank accounts and credit cards make it almost impossible for people to take companies to court when things go wrong", said CFPB Director Richard Cordray in a statement. Should the final rule remain in place, we can advise you on how current arbitration clause language will need to change, how to preserve rights under present contracts, and, as always, how to protect your rights in court. The CFPB said these rules have denied people their day in court. The law allows lawmakers to review and overrule regulations within 60 legislative days by a simple majority. The new rules have been two years in the making.

For the CFPB, the calculation for finalizing the arbitration rule was complicated.

The new rule also asks financial institutions that use arbitration to provide certain records of the process to the CFPB.

The decision by the CFPB has generated concern the new rule will fuel renewed interest in class action lawsuits clogging the courts with specious legal actions which are frequently of little benefit to consumers.

"Right now, many contracts for consumer financial products like bank accounts and credit cards come with a mandatory arbitration clause that makes it virtually impossible for people to sue the company as a group if things go wrong", said CFPB Director Richard Cordray in statement.

Cordray told reporters that the agency is aware that there may be congressional challenges to the rule. "That is a process that I expect will be considered and determined on the merits". He helped get the issue studied as part of the Dodd-Frank Wall Street reform bill passed in response to the Great Recession. "In deciding to issue this rule, that is what I believe I have done". The department has switched litigation positions, or moved to abandon, provisions in several key disputes that restricted the use of arbitration agreements.

Media reports have indicated that U.S. Sen.

If that indeed happens, the CFPB would be barred from reinstating any similar rule in the future without the consent of Congress. "Additionally, we call upon the administration and Congress to establish the necessary checks and balances on the CFPB before it takes more one-sided, overreaching actions".

"Since most consumers can not afford to take on a big corporation on their own, banks like Wells Fargo get away with ripping off large numbers of customers", says Amanda Werner, arbitration campaign manager with Americans for Financial Reform and Public Citizen. It's a get-out-of-jail-free card for lawbreakers. "Now everyday consumers can join forces to compel companies to stop unfair practices".

The rule also compels financial companies to hand over documentation related to any individual arbitration disputes to the agency, which it will make available to the public in July 2019. The agency put forth a rough draft of its ban past year, and issued a study in 2015 looking at arbitration clauses in the industry. If enacted, the move would make it much easier for U.S. consumers to sue their banks.