The CFPB Issues Long-Awaited Rule to Curb Arbitration Abuse, Offering a Glimmer of Hope for Consumers amid Trying Times

On Monday, July 10, 2017, the Consumer Financial Protection Bureau (“CFPB”) issued a rule that will halt abusive tactics by credit card companies, banks, and other financial firms to prevent consumers from bringing class actions. 

Class actions are specifically designed to protect the rights of consumers who have been harmed en masse but do not have claims that are large enough to justify the tens of thousands of dollars (or hundreds of thousands of dollars) that it takes an individual plaintiff to pursue a case in court or arbitration.  Without class actions financial institutions would have free reign to engage in abusive and illegal practices. 

In recent years many financial contracts included arbitration clauses designed to prevent customers from filing class actions.  After the financial crisis in 2008, the Obama administration passed the Consumer Financial Protection Act in 2010, which created the CFPB to more closely monitor banks and other financial institutions.  

The CFPB has been studying these contracts and issued a rule that blocks arbitration clauses that prevent collective action by consumers.  In issuing the rule the CFPB found that the class action bans “make it nearly impossible” for customers to seek redress from companies. 

Certain lawmakers, however, dislike the rule because it does not fit with the de-regulatory landscape that they want.  In fact, in the past they have drafted bills to weaken CFPB.  One of these laws actually repealed the portion of the Consumer Financial Protection Act that gave the CFPB the power to limit arbitration clauses.  They have also frequently used the Congressional Rule Act, which enables Congress to block any federal regulation within 60 days, to stop other regulations from going through, and may use it to try to block the new arbitration rule.  This is terrible news for consumers.

While the future of the new CFPB rule remains uncertain, the rule is an important one because individual consumers may not have the resources to pursue their claim on their own.  By allowing consumers to ban together to hold financial institutions accountable through class actions, the rule helps protect consumers.  It is important that consumers be well educated about the importance of class actions and that consumers speak out against attempts to curtail their Constitutional right to seek redress from the Courts.

In addition, it is not just the new rule that is under attack – the CFPB has also been under attack because it has done its job so well.  Since being formed the CFPB has handled more than one million consumer complaints.  The CFPB is host to the largest database of consumer complaints in the world.  The agency has provided more than $10 billion in relief to more than 25 million Americans.  

Cotchett, Pitre & McCarthy, LLP has a long track record of representing consumers, small businesses, employees and whistleblowers who have been the victim of financial fraud. 

The author wishes to acknowledge the research work of Francesca Reifer, a law clerk at Cotchett, Pitre & McCarthy.