WASHINGTON – The Consumer Financial Protection Bureau (CFPB) has proposed new rules that would allow class-action lawsuits by aggrieved customers of financial services companies.
The rule, to be announced Thursday, prohibits banks and other businesses that issue credit cards, make loans or provide checking and additional financial services from making customers sign agreements that take away their right to participate in group legal actions.
Hundreds of millions of consumers are affected by so-called forced arbitration clauses that allow companies to compel customers to submit disputes about alleged wrongdoing to binding decisions made by private individuals. The clauses do not preclude individual small-claims court actions. But they usually block other kinds of lawsuits including class actions.
"No matter how many consumers are injured by the same conduct, consumers must proceed to resolve their claims individually against the company," the CFPB said in explaining its reasoning for the new rules.
Class actions let "companies know they can be called to account for their misconduct," the bureau said. So "they are less likely to engage in unlawful practices that can harm consumers."
CFPB bureau is accepting comments on the newly proposed rule, which would affect several Minnesota financial services companies. TCF Bank, Ameriprise Financial, and U.S. Bancorp offered no comment on the new rules.
The Financial Services Roundtable, a national trade group run by former Minnesota Gov. Tim Pawlenty, includes Ameriprise and U.S. Bancorp. The trade group opposes restrictions on arbitration.
"If done well, arbitration provides a quick and efficient way for customers to resolve disputes with financial companies and a potential new rule by the Consumer Financial Protection Bureau could push arbitration to the back of the line of dispute resolution options available to consumers," the roundtable said in an October 2015 news release.
The American Bankers Association added its criticism Thursday, it's president saying "consumers will get less and pay more if the CFPB's proposal to sideline arbitration and promote class actions is ultimately adopted."
U.S. Sen. Al Franken, who has criticized forced arbitration as anti-consumer and battled for changes in federal policy, welcomed the newly proposed rule.
"Corporate America often exploits forced arbitration to stack the deck against ordinary Americans," Franken said in an e-mail to the Star Tribune. "By stripping away people's access to the courts, these little clauses have huge legal implications for each and every Minnesotan. And they're buried in everything from nursing home contracts to employment agreements and private student loans. I believe that all Americans have a fundamental right to seek justice when they've been wronged, and that's why we need to limit the unfair practice of forced arbitration."