Regulatory Agency Removes Roadblocks to Consumer Lawsuits Against Financial Institutions

The Consumer Financial Protection Bureau ("CFPB") has recently banned most types of mandatory arbitration clauses that require credit card and bank customers to use an arbitrator when they have a dispute with a financial institution. The new rule is intended, in part, to deter wrongdoing by financial institutions by allowing customers to file class action lawsuits against them.

Mandatory arbitration clauses are found in the fine print of agreements related to an enormous number of financial products, including credit cards and checking accounts. Opponents of such clauses argue that they are a way for companies to avoid the court system. This is because, for example, a consumer who wishes to dispute a relatively small overdraft charge is not likely to hire a lawyer to sue its bank. However, a group of consumers who were all individually impacted by the same charge are more likely to dispute it collectively in the form of a class action lawsuit.

The CFPB's new rules are not, however, a total ban on arbitration clauses and will not apply retroactively to existing contracts. Financial companies will still be able to force individuals to address some disputes through arbitration. Financial institutions have opposed banning arbitration clauses, arguing that arbitration is a more efficient way of handling small disputes. Certainly, these companies are also concerned about exposure to large lawsuits.

The CFPB is an independent agency which was created under the Obama Administration. Opponents of the agency view the CFPB as having too much power and too little oversight. Its new rules are likely to face opposition from not only the banking industry, but also Republicans in the House and Senate, and the White House. However, the new rules have the potential to be popular with consumers. Moreover, Congress has previously passed laws that ban arbitration clauses in other contracts for financial products - notably, mortgages. If you would like more information on this topic, contact PLDO's business law team at 401-824-5100. We welcome your comments, questions and suggestions.

No Comments

Leave a comment
Comment Information

Contact Our Firm And Schedule A Consultation

Work with our experienced team of lawyers. Call 866-353-3310 or email us today to schedule a consultation.

View Office Locations

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Email Us For A Response

Rhode Island
Northwoods Office Park
1301 Atwood Ave.
Suite 215 N
Johnston, RI 02919

Toll Free: 866-353-3310
Phone: 401-824-5100
Fax: 401-824-5123
Map & Directions

One International Place
Suite 1400
Boston, MA 02110

Toll Free: 866-353-3310
Fax: 866-353-5020
Map & Directions

Boca Raton Office
Peninsula Plaza
2424 North Federal Highway
Suite 204
Boca Raton, FL 33431

Phone: 561-362-2030
Fax: 866-353-5020
Map & Directions

901 Main Street
Suite O
Osterville, MA 02655

Phone: 508-420-7159
Fax: 508-420-7162
Map & Directions

GPS Directions to this office: 555 Valley Street, Providence, RI 02908