Rule could let consumers sue financial institutions
The nation’s consumer watchdog adopted a rule Monday that would pry open the courtroom doors for millions of Americans, by prohibiting financial firms from forcing them into arbitration in disputes over their bank and credit card accounts.
The action, by the Consumer Financial Protection Bureau, would deal a serious blow to banks and other financial firms, freeing consumers to band together in class-action lawsuits that could cost the institutions billions of dollars.
“A cherished tenet of our justice system is that no one, no matter how big or how powerful, should escape accountability if they break the law,” Richard Cordray, director of the consumer agency, said in a statement.
The new rule, which could take effect next year, is almost certain to set off a political firestorm in Washington. Both the administration of President Donald Trump and House Republicans have pushed to rein in the consumer finance agency as part of a broader effort to lighten regulation on the financial industry.
The rule “should be thoroughly rejected by Congress under the Congressional Review Act,” said Rep. Jeb Hensarling, R-Texas, who has been leading the charge to weaken the agency. “In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives.”
Under the Congressional Review Act, lawmakers have about 60 legislative days to overturn the rule blocking mandatory arbitrations.
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 sharply criticized arbitration clauses for allowing corporations to circumvent the courts and for taking away tools to fight abusive business practices.
The new rule would unwind a series of legal maneuvers undertaken by major U.S. companies to block customers from going to court to fight potentially harmful business practices.
The new 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 millions of Americans in the aftermath of the mortgage crisis.