A new rule proposed by the Consumer Financial Protection Bureau would let consumers sue banks over a variety of financial products, including bank accounts, private student loans, money-transfer services, installment loans, payday loans, prepaid cards, and credit cards, and certain types of loans. The proposed rule would also prohibit arbitration clauses in consumer financial contracts, again giving more power to consumers.
The CFPB wants to prevent financial companies from employing mandatory arbitration clauses so as to inhibit class action securities cases involving significant quantities of plaintiffs. However, they would still be allowed to obligate consumers to resolve individual disagreements in arbitration. Companies that decide to include arbitration clauses in their contracts would have to notify the CFBP about the specifics of cases, including any awards and claims.
The CFPB said that according to a study it conducted in 2015, arbitration clauses were found in “hundreds of millions of consumer contracts” used by credit card users, private student loan lenders, banks taking insured deposits, as well as in prepaid card agreements and payday loan contracts in certain states.
There will be a 90-day public comment period and then there will be the drafting of the final version of the rule, which would likely go into effect in 2017. While plaintiffs’ lawyers and consumer groups are in favor of the proposed rule, banks are in opposition to it. They cautioned that the rule could lead to higher loan costs, as well as costly litigation expenses. The banks would then likely raise the costs of loan products or provide fewer services.
Lenders have warned that there could be a reduction in new loan offerings even though regulators have been pushing financial institutions to start lending to high-risk customers.
Rule on Arbitration Would Restore Right to Sue Banks, The New York Times, May 5 2016
It’s about to get easier to sue your bank, Yahoo, May 6, 2016