Rule Alleviating Bank Consumer Fraud Potentially In Jeopardy

A battle over what’s best for consumers who are victims of consumer fraud at the hands of banks and other financial institutions is brewing in Congress: In July, the Consumer Financial Protection Bureau banned banks and other financial institutions from forcing customers to agree to arbitration instead of class action lawsuits if they were the victims of fraud via a rule. However, several lawmakers have been working furiously to repeal the rule since then, claiming that it will only encourage frivolous lawsuits.

Prior to the rule, banks had long buried arbitration clauses in their contracts with consumers, requiring that they resolve any issues with the banking facilities behind closed doors instead of in court. Thus, when Wells Fargo customers found out that bank employees had opened fake accounts in their names, for example, they couldn’t file a class-action lawsuit against the bank for fraud. In addition, due to the confidential nature of arbitration, there was a lack of transparency regarding just how many consumers were affected. In other words, without press or law enforcement, it’s easier for banks to get away with fraud.

Arbitration versus Class Action

The argument has come down to disagreeing over the benefits of arbitration versus class action lawsuits. While those opposed to the rule claim that consumers stand to benefit more from arbitration than bringing a class action lawsuit, naturally, those in favor of the rule claim that this is misleading, and arbitration amounts aren’t even close to a typical consumer outcome.

In addition, according to a report recently put together by the Economic Policy Institute, consumers win only about nine percent of arbitration disputes, while companies making claims or counterclaims are granted relief 93 percent of the time. That means that consumers could actually end up paying the bank or lender thousands of dollars for trying to resolve their own dispute via arbitration. The report also found that approximately 6,800,000 consumers obtained cash relief and recovered around $440,000,000 in class action lawsuits, compared to just 16 who received cash awards in arbitration, averaging around $86,216.

Perhaps most shockingly, those lawmakers fighting to repeal the rule received a reported $100 million in campaign funds from the financial sector. 

Voting Coming This Fall

Those who support the rule call it one of the biggest victories for consumers that the country has ever seen because it finally allows consumers to hold banks accountable when they break the law.

However, this fall, lawmakers opposed to the rule plan to use the Congressional Review Act to fight it. If 51 Senators vote to repeal it, consumers will once again be locked into arbitration and barred from bringing class-action lawsuits when they are the victims of consumer fraud at the hands of banks and other financial institutions.

Committed Consumer Protection Attorneys in Florida

In commercial litigation, the attorneys of Lavalle, Brown & Ronan, P.A. have long been fighting to protect Florida consumers who are victims of consumer fraud. You have rights under federal and state law, and working with an attorney can provide you with options. Contact a member of our team today to find out how we can help.

For more information and in depth analysis, please contact Attorney Ken Ronan at   kronan@bocalaw.com and Case Manager Richard Bagdasarian at rbagdasarian@bocalaw.com.

Resources:

forbes.com/sites/dianahembree/2017/08/30/republicans-accelerating-repeal-of-cfpb-rule-protecting-consumers-right-to-sue-banks/2/#d1419aa671a3

epi.org/publication/correcting-the-record-consumers-fare-better-under-class-actions-than-arbitration/

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