Rule makes it eas­ier for con­sumers to sue

Repub­li­cans likely to op­pose move by con­tro­ver­sial agency

The Denver Post - - BUSINESS - By Ken Sweet

NEW YORK» Con­sumers could band to­gether to sue their banks or credit card com­pa­nies un­der a fed­eral rule is­sued Mon­day that’s likely to face re­sis­tance from Con­gres­sional Repub­li­cans and the White House.

The Con­sumer Fi­nan­cial Pro­tec­tion Bureau de­cided to ban most types of manda­tory ar­bi­tra­tion clauses, which re­quire credit card or bank cus­tomers to use a me­di­a­tor when they have a dis­pute — of­ten giv­ing up their right to sue in court.

Manda­tory ar­bi­tra­tion clauses are found in the fine print of tens of mil­lions of fi­nan­cial prod­ucts, from credit cards to check­ing ac- counts. Be­cause con­sumers gen­er­ally don’t care­fully read the fine print on the agree­ments for their check­ing ac­counts and credit cards, they are of­ten un­aware they are sub­ject to ar­bi­tra­tion.

Those clauses are not sym­bolic. They are used heav­ily by banks. Even Wells Fargo banned cus­tomers from fil­ing class-ac­tion law­suits against it dur­ing the height of its sales prac­tices prob­lems, un­til pres­sure from politi­cians and out­side groups led the bank to waive that right ear­lier this year.

Con­sumer ad­vo­cates have been push­ing for years for stricter fed­eral reg­u­la­tion of these types of clauses.

The clauses, said Richard Cor­dray, di­rec­tor of the Con­sumer Fi­nan­cial Pro­tec­tion Bureau, are a way for banks and other fi­nan­cial com­pa­nies to “side­step the le­gal sys­tem.”

“The rule will help to com­bat the cul­ture of com­pa­nies prof­it­ing from charg­ing il­le­gal fees and com­mit­ting other crimes against their cus­tomers,” said Ro­hit Cho­pra, se­nior fel­low at the Con­sumer Fed­er­a­tion of Amer­ica, an um­brella group for dozens of con­sumer ad­vo­cacy or­ga­ni­za­tions.

Banks have strongly op­posed ban­ning ar­bi­tra­tion causes, ar­gu­ing that ar­bi­tra­tion is a more ef­fi­cient way of han­dling small dis­putes and that class-ac­tion law­suits largely ben­e­fit the lawyers han­dling the cases.

“We are not happy, but it’s not sur­pris­ing,” said Richard Hunt, pres­i­dent of the Con­sumer Bankers As­so­ci­a­tion, the trade and lob­by­ing group that rep­re­sents large re­tail banks like Bank of Amer­ica, Wells Fargo, JPMor­gan Chase and oth­ers.

Other in­dus­try groups echoed Hunt’s com­ments, call­ing the new rules over­reach­ing and called for Con­gress to step in.

The CFPB has long had its eye on ar­bi­tra­tion clauses in fi­nan­cial con­tracts.

The agency put forth a rough draft of its ban last year, and is­sued a study in 2015 look­ing at ar­bi­tra­tion clauses in the in­dus­try. The 2010 Dodd-Frank Act, which cre­ated the CFPB, man­dated that the agency look at ar­bi­tra­tion clauses and, if war­ranted, is­sue reg­u­la­tions to re­strain them.

The CFPB held its first hear­ing on the topic in Den­ver in Oc­to­ber 2015.

The CFPB’s rules are not a to­tal ban on ar­bi­tra­tion clauses. Fi­nan­cial com­pa­nies will still be able to force in­di­vid­u­als to set­tle dis­putes through ar­bi­tra­tion, but those kinds of cases are far less com­mon than class-ac­tion cases.

The ban also won’t ap­ply to any ex­ist­ing con­tracts. So if a cus­tomer has a credit card with Amer­i­can Ex­press, for ex­am­ple, that ar­bi­tra­tion clause re­mains in ef­fect.

But the move by the CFPB — a high-pro­file in­de­pen­dent agency cre­ated un­der Pres­i­dent Barack Obama — is likely to face push­back from the bank­ing in­dus­try and the Repub­li­can-con­trolled Con­gress, which sees the CFPB as an agency with too much power and too lit­tle over­sight.

Con­gres­sional Repub­li­cans have been us­ing a ‘90s-era law known as the Con­gres­sional Re­view Act to roll back reg­u­la­tions is­sued in the fi­nal months of Obama’s administration. The law al­lows Con­gress, with a sim­ple ma­jor­ity vote that does not re­quire the 60-vote fil­i­buster thresh­old in the Se­nate, to over­ride an agency’s re­cently is­sued rules within 60 leg­isla­tive days of it be­ing fi­nal­ized.

“The rule should be thor­oughly re­jected by Con­gress,” said Repub­li­can Con­gress­man Jeb Hen­sar­ling of Texas, the CFPB’s big­gest foe in Con­gress and chair­man of the House Fi­nan­cial Ser­vices Com­mit­tee.

The White House de­clined to com­ment on the CFPB’s an­nounce­ment.

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