U.S. agency moves to allow class-action lawsuits against financial firms
The nation’s consumer watchdog adopted a rule Monday that will pry open the courtroom doors for millions of Americans, restoring their right to bring class-action lawsuits against financial firms.
Under the Consumer Financial Protection Bureau rule, banks and credit card companies could no longer force customers into arbitration and block them from banding together to file a classaction suit.
The change would deal a serious blow to Wall Street and could wind up costing financial firms billions of dollars.
Richard Cordray, director of the Consumer Financial Protection Bureau, said including mandatory arbitration clauses in contracts “allows companies to sidestep the judicial system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm large numbers of consumers.”
More immediately, its adoption is almost certain to set off a political firestorm in Washington, where both the administration of President Donald Trump and House Republicans have pushed to rein in the consumer finance agency as part of an effort to lighten regulation on the financial industry.
Under the Congressional Review Act, lawmakers have 60 legislative days to overturn the rule blocking mandatory arbitrations. The rule could take effect next year.
The Chamber of Commerce and other probusiness groups have belittled the rule as nothing more than a gift to class-action lawyers, who tend to be Democratic donors.
But as much as Republicans deplore the consumer protection agency, they may find it difficult to kill a rule that could have populist appeal. Judges, prosecutors and regulators have decried arbitration clauses for allowing corporations to circumvent the courts and for taking away the only tools citizens have to fight illegal or deceitful business practices.
The rule is one of the signature efforts of the Consumer Financial Protection Bureau, which was created in 2010 as part of the Dodd-Frank regulatory overhaul to safeguard the rights of Americans after the mortgage crisis.
At a time when DoddFrank has come under attack, the arbitration initiative from the consumer finance agency — which operates independently from the Trump administration — is a provocative stand against the political tide in Washington.
Supporters of the agency say arbitration is the kind of issue that requires independence from corporate interests.
“Forced arbitration deprives victims of not only their day in court, but of the right to band together with other targets of corporate lawbreaking. It’s a get-out-of-jail-free card for lawbreakers,” said Lisa Donner, executive director of Americans for Financial Reform. “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”
The rule will unwind a series of brazen legal maneuvers undertaken by major U.S. companies to block customers from going to court to fight potentially harmful business practices.