A New Rule Says You Can Now Sue Your Credit Card Company

July 11th 2017

A new rule put into place by the Consumer Financial Protection Bureau could allow consumers to challenge their credit card companies in court. According to The New York Times, the rule, which would go into effect sometime next year, prohibits financial firms from forcing consumers into arbitration, and allows consumers to enter into class-action lawsuits against financial institutions.  

CFPB BuildingMike Licht -

What's arbitration?

According to The Balance, arbitration is "the process of bringing a business dispute before a disinterested third party for resolution." Put simply, it's an alternative to going to court. But many financial institutions include arbitration clauses in their contracts that require consumers to settle legals disputes in arbitration rather than via lawsuits. Per the Times, "Across the country, judges, prosecutors and regulators have sharply criticized arbitration clauses for allowing corporations to circumvent the courts and for taking away tools to fight abusive business practices." In other words, in order to get a credit card, customers are usually forced to sign over their rights to a class-action suit.

CourtroomKaren Neoh -

The new rule, however, bans mandatory arbitration clauses, giving consumers the ability to take their grievances to court, and group together into class-action suits. That last part is important when it comes to suits over (relatively) small amounts. While few consumers would feel it was worth it to go into arbitration over, say, a $100 charge on their cable bill, a class-action suit allows consumers to group together and assert their rights. The rule in turn prevents companies from "sidestepping the courts," in the words of CFPB Director RIchard Courdray.

A 2015 New York Times piece about arbitration calls class-action lawsuits "realistically the only tool citizens have to fight illegal or deceitful business practices," and identifies a number of cases cases in which arbitration clauses caused class-action suits to be thrown out: a suit brought by Time Warner customers over unexplained charges on their bills; a suit brought by black employees of Taco Bell alleging discrimination; suits over sex discrimination and price fixing. 

Some Republicans are pushing back. 

Republicans are pushing back hard against the bureau's rule—and even the bureau itself. The CFPB was established in response to the 2008 collapse of the housing market to protect consumers from abusive business practices like those that caused the crash. But Republicans (and financial interests) see it as a big government nuisance. In a statement, House Financial Services Committee Chairman Jeb Hensarling said, "This bureaucratic rule will harm American consumers but thrill class action trial attorneys." He said Congress and President Trump have to "make good on this mandate [to drain the swamp] by fundamentally reforming the CFPB and dismantling the Administrative State.”

This could lead to a big fight in Congress, which could use the 1996 Congressional Review Act to overturn the rule within 60 days. According to the Los Angeles Times, "It’s all but certain that Republican lawmakers in control of the House and Senate will move quickly to overturn the rule as part of their ongoing efforts to cripple the consumer-watchdog agency and create a more business-friendly regulatory landscape."

And indeed, according to The Hill, Senator Tom Cotton, a Republican from Arkansas, has already begun the process of repealing the rule. 

But progressives are gearing up for a fight. 

While most Republicans oppose the rule, it would be difficult for them to overturn a rule that might turn out to be quite popular among consumers. So, with popular appeal as their only weapon—lacking majorities in both Houses of Congress, Democrats, most prominently Elizabeth Warren of Massachusetts, took to Twitter to defend the new rule:

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