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The Consumer Financial Protection Bureau finalized a new rule that could make it easier for consumers to join class-action lawsuits against banks and credit card companies for alleged wrongdoing.
The rule, which would become fully effective in about eight months, prohibits financial service companies from requiring customers to waive their rights to sue through a class-action lawsuit. Such waivers show up repeatedly in mandatory arbitration clauses that are part of tens of millions of consumer contracts.
The actual impact on consumers remains unclear, however. For one thing, Congress could revoke the regulation under the Congressional Review Act, which allows them to nullify recently enacted rules by federal agencies with simple majority votes and the president's signoff. Republicans have already voiced opposition to the new rule.
And even if it survives, the new regulation applies only to new contracts between consumers and their financial institutions. So if the contract you signed when you set up your current bank account includes a mandatory arbitration clause—and many do—your current bank can still compel you to resort to arbitration in a dispute.
"One avenue available to consumers who want to take advantage of the new rule is to open a new account after the compliance date," says Eric Goldberg, Senior Counsel for the CFPB.
But that means waiting at least eight months. The rule becomes effective 60 days after it's published in the Federal Register, which Goldberg said he expected to happen within the next two weeks. Financial companies then have an additional 180 days to get into compliance.
Dick Bove, a banking industry analyst with Rafferty Capital Markets, thinks few consumers are likely to make that move just to get those additional protections.
"If you have a relationship with a bank in which you have multiple accounts and have had good service over several years, the last thing you're thinking about is the lawsuit you're going to have with the bank in the future," Bove says.
Still, some consumer advocates think the new rule could prompt widespread change. Christine Hines, a spokeswoman for the National Association of Consumer Advocates, thinks financial institutions could end up eliminating mandatory arbitration clauses altogether because the new rule essentially defangs them.
"It is going to have a big impact," she says.
Though the banking industry has criticized the rule, consumer groups, including Consumer Reports, have long opposed forced arbitration clauses and see the rule as an important step for consumers in restoring basic rights in holding financial companies accountable for widespread wrongdoing.