A new rule by a federal watchdog—hailed as having “paramount importance” for protecting consumers from Wall Street predators and curbing corporate abuses—is under direct attack by Republicans just days after being issued.
The rule from the successful and broadly-supported Consumer Financial Protection Bureau (CFPB) bans companies from using mandatory arbitration clauses, which makes consumers give up their right to file or join class-action lawsuits. In other words, it blocks “rip-off clauses” that are “a fine-print trick that banks and predatory lenders use to evade accountability and conceal illegal behavior,” as advocacy group Public Citizen put it, noting that they are also used by many corporations.
As the CFPB outlines,
In being able to stop group lawsuits, making people “go it alone or give up,” companies can deny consumers their day in court; avoid paying out big refunds; and continue harmful practices, the agency states.
“By prohibiting class actions,” the Economic Policy Institute’s Celine McNicholas writes, “companies have dramatically reduced consumer challenges to predatory practices.”
Announcement of the new rule on Monday drew praise from consumer advocacy as well as U.S. Senator Elizabeth Warren (D-Mass.), who helped create the agency in the aftermath of the 2008 financial crisis as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Warren, for her part, said the new rule “will allow working families to hold big banks accountable when they’re cheated and help discourage the kinds of surprise fees that consumers hate.” Dennis Kelleher, president and CEO of Better Markets, said it marked “a good day for investor and consumer protection.”
“Over the past decade,” added Lisa Gilbert, vice president of legislative affairs for Public Citizen, “large corporations have turned fine-print clauses buried deep in their contracts into a license to steal from American consumers and cover up the evidence. The CFPB rule will right this egregious wrong by restoring consumers’ ability to enforce their most basic rights and protections in court.”
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