The consumer protection bureau created out of the rubble of the Wall Street meltdown took a big step May 5 to live up to its name and duty.
It proposed rules to restore the rights of customers to band together and file class-action lawsuits against financial firms for deceitful practices in bank accounts, credit cards and loans.
It’s a necessary step to level the playing field, at least somewhat, for lowly customers against these financial behemoths, which have used the fine print of agreements to force consumers to take all disputes into binding arbitration instead of the courts.
Consumer advocates say these mediators are often biased and routinely rule in favor of corporations.
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They are the most sweeping regulations the Consumer Financial Protection Bureau has issued in its six years, and it’s about time.
A study, ordered by Congress and released last year, found that 15 of the 20 biggest credit card companies and half of all large banks had such mandatory arbitration clauses, as did nearly all prepaid debit cards and payday loans. The study also found that three-fourths of Americans were unaware they had agreed to arbitration.
The analysis suggested that arbitration is a more efficient way to handle small claims by individual customers; the new rules don’t cover those cases.
But the bureau says that the possibility of class-action suits will deter unfair practices by financial institutions that affect many customers.
The public has 90 days to comment on the rule. If adopted, it would take effect next year.
The industry, of course, warns that these rules will raise costs for all customers. Such alarms would be more believable if banks were not already jacking up all sorts of fees and charges, and racking up sky-high profits.
The banks also say that the biggest winners will be trial lawyers, who will file frivolous suits in search of a big payday. That’s a legitimate concern, but then again, if it takes a class-action lawsuit to stop a practice that hurts thousands and thousands of customers, that’s the price to pay.