CFPB makes it easier to file class action suits against financial companies
Consumer Financial Protection Bureau Breathes New Life Into Class Actions
On July 10, 2017, the U.S. Consumer Financial Protection Bureau (CFPB) made it easier for groups of consumers to sue certain financial companies by joining together in class actions.
The CFPB took action in response to a recent trend on the part of consumer financial product and service companies (like banks, lenders, and credit card companies) to include provisions in their agreements which prohibited the consumer from joining together with others to file a class action against the company. This often left the individual, according to the CFPB, with no real access to the courts because the amount involved for the individual would be too small on its own to justify a lawsuit. As a result, “by forcing consumers to give up or go it alone – usually over small amounts – companies can side-step the court system, avoid big refunds, and continue harmful practices.” (CFPB press release)
The Bureau, which is authorized by law to consider and enact regulations relating to consumer protection, first proposed the new regulations in May, 2016. It invited comments from both the public and financial companies. After receiving and considering more than 110,000 comments by its August, 2016 deadline, the CFPB issued several hundred pages of regulations and comments, which it hopes will further deter companies from taking advantage of consumers. According to its July 10th press release:
When companies know they are more likely to be held accountable by consumers for any misconduct, they are less likely to engage in unlawful practices that can cause harm. Further, public attention on the practices of one company can more broadly influence their business practices and those of other companies. Under the rule, companies can still include arbitration clauses in their contracts. But companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.
The new regulations are scheduled to take effect within 60 days of July 10, and will apply to consumer financial contracts entered into more than 180 days after that. So at least for now, consumers who already have contracts with financial service companies might still be subject to the class action limitation. It all depends on the language of the agreement.
There is also a movement among some Republican lawmakers to overturn the CFPB regulation by invoking a rarely-used, 20-year old law, so there is still some uncertainty about the future of the regulations.
Frank G. Salpietro is the Chair of Rothman Gordon’s Business and Commercial Litigation Group, and has handled a variety of class action lawsuits. If you would like more information about this or any other matter, you can reach Frank at (412) 338-1185 or firstname.lastname@example.org.