Banks and credit card issuers will no longer be allowed to use private arbitration clauses to prevent class action lawsuits, thanks to a new rule set forth by the CFPB. The new rules have been two years in the making.
CFPB chief Richard Cordray said in a statement that through the clause, people are forced to “go it alone or give up.”
“Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together,” he added.
Some form of mandatory arbitration clause is utilized by banks representing 44 percent of insured deposits and by card issuers who represent more than half of the total credit card debt, the CFPB reported in 2015.
The clauses usually call for private mediated disputes that do not take place in public courts. This virtually eliminates any attempt of a class action lawsuit by a band of consumers. While the new rule does not stop companies from including arbitration agreements in contracts, it does stop them from avoiding class action lawsuits.
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