Financial firms would be banned from offering contracts that prevent consumers from filing class-action lawsuits under a new rule proposed by the Consumer Financial Protection Bureau.
The long-anticipated rule would apply to “mandatory arbitration” clauses in consumer contracts, which in many cases require that disputes be resolved by an appointed arbitrator and generally prevent lawsuits from proceeding in court as well as class-action suits against companies.
“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said Richard Cordray, the bureau’s director.
Under the proposed rule, companies could include mandatory arbitration clauses in contracts but would be required to include language, provided by the bureau, specifically saying that the contract does not prevent consumers from bringing class-action lawsuits.
Companies also would have provide the bureau with information about claims and awards filed in arbitration cases, allowing the bureau to monitor them.
President Obama’s 2010 financial reform law, known as Dodd-Frank, created the bureau and required it to study possible regulation of mandatory arbitration clauses. The clauses are banned for mortgages but are found in other financial contracts overseen by the bureau.
Some Democrats have pushed for the bureau to prohibit mandatory arbitration in financial products altogether, arguing that customers do not understand the rights they give up in the fine print of financial products.
Some Republicans, meanwhile, have suggested that the rule would be a boon to trial lawyers. Congressional Republicans have criticized the bureau as overly powerful and unaccountable, and has sought to bring it further under congressional oversight and limit its rulemaking.