Some of the fine print on bank account, credit card, and loan forms may soon get a rewrite that restores legal rights millions of Americans unknowingly waive when they swipe a piece of plastic or borrow money. Monday is the deadline for public comment on a federal Consumer Financial Protection Bureau proposal to curb so-called “forced arbitration” clauses — dense language buried deep in the contracts that govern consumer financial products and services. If this sounds awfully arcane, well, it is – but the bureau’s planned change could save consumers money and aggravation by eliminating an unfair advantage companies hold over anyone who dares to challenge a late fee or early-termination penalty.
The arbitration clauses are designed to prevent customers from taking legal recourse against a business. Specifically, they keep them from joining a class action lawsuit. Instead, individual complaints must go to a private arbitrator who often is selected by the company that’s been accused of wrongdoing. Findings typically are binding, and appeals are nearly impossible. Even the very notion of arbitration is enough to discourage most wronged consumers from taking on a bank or corporation over an unwarranted charge — it’s usually not worth the time and effort. A New York Times investigation last year found that between 2010 and 2014, just 505 people opted for arbitration in disputes involving $2,500 or less, which is most of them.
It’s no shocker that banks and other financial institutions have been campaigning against the reinstatement of consumers’ ability to participate in class action suits. A new reportfrom The Pew Charitable Trusts found that of the 50 biggest retail banks in the country, about three-quarters have contracts that prohibit customers from signing on to a class action proceeding, and 91 percent “bar consumers from having their disputes heard by a jury rather than a judge.” Some companies claim, unconvincingly, that many people prefer the simplicity and relative speed of arbitration over the slow-paced legal labyrinth of the court system. The US Chamber of Commerce says the rule change would amount to “the biggest gift to plaintiffs’ lawyers in a half century.”
While it’s true that plaintiffs probably can’t expect to buy more than a sandwich with the cash they collect from a class action settlement, the cases can bring about systemic changes for the better. There’s power in a collective effort that an individual case rarely generates. In an August 11 letter to the Consumer Financial Protection Bureau, Massachusetts Attorney General Maura Healey and 17 other state attorneys general said class action settlements “act as a deterrent to the specific defendant as well as to the industry, and lead to the reform of otherwise unchecked unlawful, unfair, or deceptive business practices.” Nearly 100 members of Congress this month also urged the bureau to do away with class action waivers. The rule change, which could take effect in 2017, provides reasonable recourse for dissatisfied consumers who have exhausted all other options. It’s something any business seeking to attract and keep customers should support.