Why Regulators Want Banks and Credit Card Companies to Let You Sue Them

by Alex Johnson 0

Another day, another disagreement between the Consumer Financial Protection Bureau (CFPB) and the American Bankers Association (ABA). Today’s disagreement is over the CFPB’s proposal to ban financial institutions’ use of arbitration clauses.

“A consumer regulator is taking aim at the way banks, credit card issuers and other lenders write contracts to stop customers from going to court if they have a complaint. Financial services companies say arbitration clauses save time and money by requiring customer disputes to be resolved in a private venue instead of court. The Consumer Financial Protection Bureau calls these clauses a “free pass” that allows lenders to wriggle out of responsibility if they mistreat customers.
On Wednesday, the bureau announced that it is weighing new bans on the practice, including barring companies from telling customers they can’t bring class actions. The proposal, which regulators planned to present at a public hearing in Denver, would apply to credit cards, checking accounts, payday loans and private student loans, among other financial products the CFPB oversees.”

Predictably, the ABA isn’t in love with this idea.

“Banks have challenged the CFPB’s interpretations, arguing that when consumers do win in arbitration, they win higher amounts on an individual basis than they do in class actions. Arbitration is “faster, less expensive and more effective,” according to a July letter signed by the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable.
“We are disappointed the bureau, despite numerous studies and the CFPB’s own report, is choosing to side with trial attorneys over the interests of consumers,” Richard Hunt, the Consumer Bankers Association’s president and CEO, said in a statement Wednesday. “Given today’s announcement is not final, we hope the CFPB will reconsider its decision.”

One thing is for certain. Consumers have no idea what is going on.

“The CFPB found that contracts with arbitration clauses applied to 53 percent of the credit card market. But among approximately 1,000 credit card holders surveyed by the bureau, more than 75 percent did not know whether their own contract contained such a clause.”

Overview by Alex Johnson, Sr. Analyst, Credit Advisory Service at Mercator Advisory Group

Read the full story here

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