Released: May 05, 2016

Financial firms can’t stop you from joining class action lawsuits

Consumers will be able to join together to hold corporations accountable when they break the law

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WASHINGTON, DC—The Consumer Financial Protection Bureau (CFPB) released a rule today to restore consumers’ rights to join together to hold corporations accountable when they break the law. The proposed rule would limit the financial industry’s use of forced arbitration—an abusive practice in which corporations bury “ripoff clauses” in the fine print of take- it-or-leave-it contracts to block consumers from challenging predatory practices such as hidden fees, fraud, and other illegal behavior.

The CFPB’s current proposal does not prohibit the use of forced arbitration clauses in consumer contracts. But it does stop companies from using one of the most damaging elements of forced agreements—a ban on consumers joining class action lawsuits. Keeping customers from joining class actions prevents them from joining collective lawsuits on behalf of all consumers who have suffered similar harms, effectively leaving consumers with little to no redress and allowing corporations to break the law without consequence. Because most consumer claims are small, and individuals don't have the wherewithal to sue individually, class actions are an important form of consumer protection.

"While we had hoped that the CFPB would ban the use of forced arbitration clauses buried in the fine print of most bank, credit card and student loan contracts, we applaud the Bureau for protecting individuals' rights to band together in class action lawsuits to right the financial wrongs that deserve to be banished from the marketplace," said Consumer Action’s director of national priorities Linda Sherry. “Class action lawsuits deter other companies from contaminating the market with unfair and illegal schemes."

In forced arbitration, consumers lose the right to argue their case before an impartial judge and jury. Instead, big banks and abusive lenders are able to hire private arbitration firms of their choosing to decide the dispute, and consumers have little opportunity to present evidence or appeal bad decisions. Nearly all of these financial "ripoff clauses" prohibit participation in class actions and even bar consumers from talking about what happened to them—which means that the public often never learns about corporate scams or fraud.

The CFPB released a comprehensive study last year revealing that very few consumers are able to challenge corporate fraud or abuse when forced to pursue a large company alone. By making sure that consumers can band together to hold companies accountable, the CFPB will ensure that one of the corporate avenues for forcing consumers into individual arbitration is foreclosed.

Consumer Action commends the CFPB for taking this crucial step to limit big banks’ and other financial companies’ efforts to escape accountability for breaking the law, and urges the agency to use the full force of its authority to restore consumers’ right to choose how to resolve disputes with financial institutions in this, and every, context in the final rule.

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Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A non-profit 501(c)(3) organization, Consumer Action focuses on consumer education that empowers low- and moderate-income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.

By providing consumer education materials in multiple languages, a free national hotline, a comprehensive website (www.consumer-action.org) and annual surveys of financial and consumer services, Consumer Action helps consumers assert their rights in the marketplace and make financially savvy choices. Nearly 7,000 community and grassroots organizations benefit annually from its extensive outreach programs, training materials and support.