Right to Sue – 2016 CFPB Rule
The U.S. Consumer Financial Protection Bureau (CFPB) proposed a new rule in 2016 restoring consumers’ right to sue banks, credit card companies and consumer lenders in class actions.
The CFPB’s rule, proposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act, restricts the financial firms’ practice of using the fine print in consumer contracts to prevent them from proceeding in a class action by way of arbitration clauses.”
Class actions are important because they permit consumers to sue as a group for damages that are often too small to justify suing individually. For example, if a bank overcharges a customer by $1,000, few lawyers would be willing to accept that consumer’s case because the cost to sue would be far higher than any money they could recover. Class actions solve that problem by giving consumers the right to sue on behalf of GROUPS OF consumers. Those groups of consumers have all suffered the same injury, making the collective amount in dispute large enough to justify the expense of hiring lawyers and experts needed to pursue the class action lawsuit.
As reported in a New York Times investigation (Arbitration Everywhere, Stacking the Deck of Justice), two Supreme Court decisions permitted financial firms to exempt themselves from class actions. The court allowed the firms to add “arbitration clauses” to the fine print of their contracts that waived consumers’ right to sue as a class action.
Those cases were: AT&T Mobility v. Concepcion, 563 U.S. 333 (2011) and American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013). Since consumers have virtually no bargaining power with their bank or credit card company, these contracts are typically “take it or leave it.” If the consumer wants the product or service, he or she has no alternative other than to accept these “arbitration clauses.”
The CFPB’s rule restores consumers’ right to sue in class actions by prohibiting arbitration clauses in certain consumer financial contracts. If you have questions about potential class action claims, feel free to contact Joe Kravec, Jim Pietz or Wyatt Lison.