When you enter into agreements with banks and credit card companies, there is a section of the terms that addresses how disputes are to be handled. Very frequently, the section declares that by becoming a customer, you accept that any formal disagreement with the corporate powers that be shall be handled by way of arbitration, rather than litigation.
While arbitration as a means to settling disputes may offer benefits to consumers, including speed of process, less formality, and (ideally) less cost, one of the big problems with it has to do with the oft-stipulated requirement that agreeing to arbitration means customers are disallowed outright from litigating.
Well, according to CNN Money, a new rule just passed by the Consumer Financial Protection Bureau (CFPB) decrees that financial services companies can no longer utilize arbitration clauses as a mechanism by which to prevent consumers from bringing class action suits against them.
Arbitration clauses have long been standard features of bank and credit card agreements, and a typical component of those is a prohibition against the consumer bringing legal action against the financial institution. As a matter of fact, Wells Fargo has attempted to invoke the terms of mandatory arbitration clauses to help stem the tide of lawsuits it’s facing over the account fraud scandal that came to light last year.
The ability to use arbitration clauses in that way, however, is on the way out.
“Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together, said CFPB Director Richard Cordray.
By Robert G. Yetman, Jr. Editor At Large