New Rule Allows Consumer Class Action Lawsuits
If you're unaware that your bank forbids you from pursuing a class action lawsuit to address serious disputes, you're not alone. It's estimated that 75 percent of consumers don't know this. Fortunately, help may be on the way.
Many financial institutions today insert a clause in their customer contracts that mandates those with complaints address them in arbitration. This is known as a forced arbitration clause. Under this clause, customers must deal with their banks and credit card companies individually when they are being treated unfairly.
Forced Arbitration Hurts Consumers
Why are forced arbitration clauses bad for consumers? Arbitration usually means the big banks win and the customers lose. Rather than a trial before a judge and a jury, aggrieved consumers must argue their case before a private firm, usually chosen by the financial company. And these companies have practically unlimited financial and legal resources. That's not true for the typical bank customer, of course.
In a study of consumer fraud proceedings that was released last year, the Consumer Financial Protection Bureau found that, in 2010 and 2011, financial institutions had to pay just under $400,000 to consumers in arbitration while consumers anted up $2.8 million. That same study revealed three-out-of-every-four consumers didn't know about forced arbitration clauses in the legal documents they signed.
That's why the CFPB recently proposed a new rule prohibiting financial institutions from inserting forced arbitration clauses into their customer contracts' fine print. The CFPB is an independent federal government agency that stands watch over customers of companies in the financial sector, such as banks, credit card companies, mortgage companies, and payday lenders.
The proposed rule, which is undergoing a mandatory 90-day public comment period, would permit customers to file class action lawsuits against financial companies they believe are acting wrongfully.
Class Action Lawsuits Can Benefit Customers
How do class action lawsuits benefit consumers? They allow numerous individuals who have suffered similar damages by the unjust conduct of a corporation to band together and pursue financial compensation through one piece of litigation. Often times the individual damages are relatively small, so the time and financial resources required to take a corporation to court is usually prohibitive to any one person. The grievance goes unchecked and the company continues to prosper.
But when thousands of individuals marshal their forces into a class action lawsuit, they gain true legal leverage against America's biggest companies. Not only can they recover just financial compensation for their individual damages, their legal action can stop companies from hurting other individuals through similar bad acts in the future.
Giant financial institutions don't always deal with their customers fairly. Most individuals don't even realize they're being treated illegally until one person comes forward. Under these circumstances, a class action attorney can represent effectively and efficiently the legal rights of all those who've been hurt by a company's negligent behavior.
The choice of a lawyer is an important decision that should not be based solely on advertising.