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Consumer Financial Protection Bureau Rule Would Ban Class-Action Waivers


It might get easier to sue your bank. A lot of times you sign that right away. The Consumer Financial Protection Bureau is proposing a new rule to change that. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: When you apply for a credit card or a loan, you sign an agreement. And these days, buried in the small type is often what's called a mandatory arbitration clause. That means by signing, you agree not to sue the bank in a class action lawsuit and instead, to work out any problem that might come up with somebody that the bank hires to resolve it. Richard Cordray is the director of the Consumer Financial Protection Bureau.

RICHARD CORDRAY: The company can sidestep the legal system, avoid accountability and continue to pursue profitable practices, even if they may violate the law and harm thousands or even millions of consumers.

ARNOLD: Let's say you notice that your credit card company charge you a $50 fee that you think is unfair. And it turns out that the company is doing this to a million people. A class action lawsuit can band you together with them and make it worth some lawyer's time to go after the company for $50 million. And if the lawsuit is successful...

ARNOLD: The company then is under significant compulsion by the courts to change their practices going forward. And there's a deterrent effect also. If the companies know that they could be held accountable for these kinds of violations, then they're less likely to engage in them and more likely to be more careful about what they're doing.

ARNOLD: The proposed rule would ban a range of financial firms from using arbitration clauses to cut off consumers from joining class action lawsuits. Basically, the CFPB is saying, OK, big powerful banks, if a thousand or a million customers want to get together and sue you, they can do it.

CORDRAY: That's exactly what we're saying.

ARNOLD: But as you might imagine, the financial industry does not like this proposed rule. Travis Norton is with the U.S. Chamber of Commerce. He says the rule could bring a flood of frivolous class action lawsuits.

TRAVIS NORTON: The Consumer Financial Protection Bureau, in this rule, is really turning into the plaintiff's lawyer protection bureau.

ARNOLD: Norton worries that lawyers will be suing not to protect consumers but to unfairly shake down companies to line their own pockets. He says the proposed rule would raise legal costs for companies, which would raise prices for consumers. Let's take a recent class action lawsuit where the issue was...

NORTON: Whether Subway restaurant's foot-long sandwiches were actually 12 inches because some consumers measured them and thought that they were only 11 and a half inches. There was a $525,000 settlement. Consumers, they got $5,000. And the trial lawyers who brought the case got 520,000.

ARNOLD: But consumer advocates disagree with that. Julia Duncan is a lawyer with the American Association for Justice. She says in a class action, the court can tell a bank or lender to hand over a list of thousands of customers that might have been affected. In arbitration though, she says, the bank is in control.

JULIA DUNCAN: Corporations get to pick the arbitration provider. They choose all of the rules of the process. And there's virtually no right to appeal. And amazingly, corporations also usually insist that arbitrations remain completely secret. So the public is not able to ever find out what a lender or a bank is doing to thousands of its customers.

ARNOLD: The CFPB is now seeking public comment on the proposed rule. If a final rule is issued, it will likely go into effect next year. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
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