|
 The Consumer Financial Protection Bureau said financial firms should
be barred from using fine print in contracts that mandates
arbitration instead of a group lawsuit in the event of a dispute
over products ranging from checking accounts to credit cards. The
agency said the clauses prevent consumers who have been wronged from
receiving justice and compensation through the courts.
U.S. businesses are expected to oppose the proposal and sue if it
becomes final. They say arbitration is more efficient and helps
avoid costly litigation that rarely benefits the people filing suit.
"Companies simply insert these clauses into their contracts for
consumer financial products or services and literally 'with the
stroke of a pen' are able to block any group of consumers from
filing joint lawsuits known as class actions," CFPB Director Richard
Cordray said in prepared remarks.
"That is so even though class actions are widely recognized to be
valid avenues to secure legal relief under federal and state law."
In class actions, people band together to sue over the same alleged
wrongdoing to make the lawsuit more affordable. A 2015 study by the
CFPB found individuals rarely sue on their own because it is too
expensive and that about 6.8 million consumers receive $220 million
in payments from class action settlements each year.
In arbitration, a private individual settles a conflict. Frequently,
companies select the arbitrators, the proceedings are confidential
and decisions are hard to appeal.
Under the proposal, companies could still use arbitration clauses,
but would have to state explicitly that consumers can sign onto
class actions. They would also have to give the bureau information
on claims filed and awards issued in the arbitrations, as well as
correspondence from arbitrators regarding unpaid fees and failure to
follow standards of conduct.
Requiring customers to agree to "mandatory arbitration clauses" when
they sign up for a product has become nearly universal since a 2011
U.S. Supreme Court decision known as AT&T Mobility vs. Concepcion
validated the practice. It has also become a flashpoint for both
political parties.
Democratic presidential candidate Hillary Clinton on Thursday
supported the proposal, saying "mandatory arbitration clauses buried
deep in contracts for credit cards, student loans, and more prevent
American consumers from having their day in court when they've been
harmed."
U.S. Senator Sherrod Brown, an Ohio Democrat sometimes mentioned as
a possible vice presidential candidate in November's election,
pledged to push the CFPB to "finalize the rule as soon as possible."
[to top of second column] |
The private sector and conservative political leaders quickly
criticized the proposal, saying it only helps attorneys who file
class actions and reap fees and shares of settlements.
The chairman of the House of Representatives Financial Services
Committee, Republican Jeb Hensarling of Texas, called it a "big, wet
kiss to trial attorneys" and cast Cordray as a "de facto dictator."
"This move – which will apply to some of the most common financial
contracts including credit cards, checking accounts, and even cell
phones – essentially hands over the keys of the CFPB’s luxury office
building to the wealthy, powerful, and politically well-connected
trial lawyer lobby," he said.
The U.S. Chamber of Commerce, representing the business sector, said
that "in the 50 years since the advent of modern day class action
lawsuits, plaintiffs’ lawyers have made millions of dollars in fees
from these suits while consumers often receive little benefit."
The CFPB said the proposal would give consumers "a day in court." It
also aims to create a deterrent effect through the threat of group
lawsuits and increased transparency, the agency said.
"Forced arbitration and class action bans force consumers into a
biased, secretive, and lawless forum, preventing either a court or
an arbitrator from ordering a lawbreaker to repay all of its
victims," Lauren Saunders, associate director of the National
Consumer Law Center, said in a statement.
(Reporting by Lisa Lambert; Editing by Andrew Hay and Dan Grebler)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
