A consumer group announced a new rule making it easier for groups of individuals to sue financial service providers for wrongdoing. In the past, banks and credit card companies were able to protect themselves against class action lawsuits by including arbitration clauses in contracts which blocked people from creating or joining group lawsuits.

This means that if a person has a legal issue with a bank or credit card company, he or she must bring an individual claim against the company to a private individual called an arbitrator instead of to a court.

Financial services have been able to get away with defrauding consumers because they know that these types of claims are costly and time consuming and are usually not worth it to one individual. So, most people end up throwing in the towel rather than going through with arbitration.

According to reports, Wells Fargo asked a Federal District Court to block a class action lawsuit following a scandal in which the bank created some 2 million fraudulent accounts. This has become a common practice among banks and credit card companies who have arbitration clauses built in their contracts. The new rule will prevent this from happening in the future. After receiving a ton of pressure, Wells Fargo did end up settling, but not all banks do.

The new rule put in place by the Consumer Financial Protection Bureau will allow groups of people to file or join group lawsuits (class actions lawsuits) when they are harmed by the same conduct, making it much easier for people to recoup damages for wrongdoing.

Under the new rule, financial service providers will be required to compensate every person in the group for any wrongdoing. In some cases, the defendant company will also be required to change its behavior in the future.

What is Arbitration?

Arbitration is a type of alternate dispute resolution (ADR) used to resolve legal matters outside of the courts. When a bank or credit card company has an arbitration clause in its contract, it makes it impossible for consumers to use any other legal method to resolve a dispute. This means that the person must take the dispute before an individual arbitrator instead of a court and must do it on an individual basis.

What is a Class Action Lawsuit?

A class action lawsuit is a group lawsuit filed on behalf of a group of persons who have suffered the same or similar damages. The suit is filed on behalf of the group against one or more defendant companies.

What are the Benefits of Joining a Class Action Lawsuit?

There are several benefits to joining a class action lawsuit, including:

  • Lower cost to litigate — a class action lawsuit allows a group of persons to split the cost of the suit so it doesn’t cost them as much money as it would to file an individual claim. Financial disputes aren’t usually worth a lot of money, so it may not be worth it to spend the money on arbitration for the small amount of money one would get it return. But, if a group of say a hundred or more people all split the cost of the suit, it would be worth it.
  • Opportunity to litigate smaller claims — even when claims aren’t worth a ton of money, it allows people to sue for the principle of the wrongdoing and recoup damages for being wronged.
  • Offers uniformity and confidence — when a group of people know that others are in a similar situation, they tend to feel better about going after a huge company. It allows a person to seek justice and not to be afraid of going up against a large company.
  • Higher chance of winning the case — when a class of people sue for the same thing, the reward is split among them. This ensures that they all actually get the money they are awarded and they deserve in a timely manner. Sometimes when multiple individual lawsuits are filed against one Defendant Company, the company may not be able to pay all the damages. It may seek bankruptcy and back out of paying the later lawsuits.
  • Better for the judicial system — in addition to benefitting plaintiffs, class actions also prevent the court system from getting clogged up with multiple smaller lawsuits.

How Will the New Rule Benefit Consumers?

Consumers will now be able to join forces with other consumers who believe they have been wronged by a bank or credit card company. They will no longer have to face the company alone in arbitration and can have a quicker, less-expensive and less stressful legal experience.

This will ensure that banks and credit card companies don’t get away with wrongdoings like:

  • Hidden fees
  • Unfair billing practices
  • Deceptive lending practices
  • Deceptive advertising
  • Fraudulent accounts

The Consumer Financial Protection Bureau set the new rule to protect consumers from deceptive practices and to make it easier for them to join forces and to pursue justice and recoup damages for their harm.

The Consumer Financial Protection Bureau

The CFPB is an agency designed to help consumer finance markets work. It is responsible for updating rules so they are current and effective, enforcing the rules fairly and consistently and helping consumers to become empowered so they have more control over their economic lives.

CFPB director Richard Cordray announced that rights of groups of consumers to a day in court is “a cherished tenet of our justice system” and “that no one, no matter how big or how powerful, should escape accountability if they break the law.” The agency said they were creating the rule because they found group lawsuits were cut down.

The rule applies to all financial service providers under the group’s jurisdiction, including those who lend, store, move or exchange money.

Could You be Part of a Class Action Lawsuit?

If you believe that you’ve been harmed by a deceptive practice, you should contact a consumer rights lawyer to find out if you have a legitimate claim and if there are other plaintiffs in your situation. You may be eligible to file or join a class action lawsuit, seeking damages for your harm.