Reuters quotes Ted Frank on the defeat of a bill banning forced arbitration clauses.
Banks, credit card issuers and other financial companies will be able to block customers from banding together to sue over disputes, after the U.S. Senate on Tuesday narrowly killed a rule banning the firms from using “forced arbitration” clauses.
Customers must agree to the clauses as a condition of opening accounts, saying they will take any disputes to closed-door arbitration instead of joining class-action lawsuits, where complainants band together to share litigation costs. The clauses are used for nearly every U.S. consumer product and service since the Supreme Court ruled them legal in 2011.
Victims of the Equifax Inc. (EFX.N) hack were outraged last month when the company included forced arbitration fine print in offering them free credit monitoring. The company later removed the clauses.
At the same time, Wells Fargo & Co (WFC.N) customers whose identities were used in last year’s phony accounts scandal have had difficulty suing the bank because they are bound by arbitration clauses in contracts they signed for legitimate accounts. The CFPB rule, set to go into effect next spring, was not retroactive and would not have helped Equifax or Wells customers.
The CFPB created its rule after conducting a five-year study that found customers struggle to have banks open arbitration cases about their complaints, but that those few cases have led to slightly higher individual awards than class actions.
“The Senate today prevented a cash grab that would have transferred wealth from consumers to the pockets of wealthy attorneys,” said Ted Frank, director of the center for class-action fairness at the free-market group Competitive Enterprise Institute.
Read the entire article at Reuters.