The government agency in charge of protecting consumers in the financial sector just made it a lot easier for consumers to take up legal action against banks and other financial institutions in the event of a dispute.
On Monday, the Consumer Financial Protection Bureau announced a new rule that bans arbitration clauses, fine print present in contracts for many financial products that force customers to use a mediator in a dispute. This generally means that a consumer or a group of consumers surrender their right to file a lawsuit against a bank or financial institution if there’s a dispute. Consumer advocates are applauding the new rule, saying it’s a step forward in fighting back against big banks that take advantage of customers with excessive fees and regulations. Banks and financial institutions are bristling at the move, calling it an overreach and arguing that arbitration is the best way to address these kinds of disputes, as class action lawsuits often take a long time to resolve and can be more beneficial financially to the lawyers than the consumers.
What is the role of the CFPB? Is it doing its job? Should it be doing more? Does its role need to be curbed? Should Congress be in charge of making big decisions like the one the CPFB made to ban arbitration clauses?
Alan Kaplinsky, partner and co-practice leader of the Consumer Financial Services Group at the law firm Ballard Spahr, LLP; he is widely considered to be the father of the arbitration clause