The Consumer Financial Protection Bureau is moving forward with its costly arbitration rule, which would limit the use of class-action waivers in various consumer agreements.
What does that mean? First announced in 2016, the new mandate effectively punishes banks and financial institutions by making them more susceptible to class action lawsuits, which often carry millions of dollars in costs. The proposed rule would bar these financial institutions from using arbitration agreements that prevent consumers from filing or joining class action lawsuits in court in certain situations. The proposal encompasses credit card companies, traditional banks, and different types of lenders, which are disproportionately prone to costly class actions. It could open the door to widespread class-action litigation risk for almost all consumer finance companies that currently utilize arbitration language in contracts with customers, leaving these companies vulnerable to significant legal fees and damages—justified or not. In some cases, companies can face months of legal battles even if they’re not at fault for anything.
