Congress Shoots Down CFPB Rule Allowing Consumers to Sue Banks and Other Financial Companies

Congress passed a bill that killed a regulation from the Consumer Financial Protection Bureau that would have prohibited financial institutions from including forced-arbitration language in consumer contracts.

Congress recently passed a bill that prevents a Consumer Financial Protection Bureau (CFPB) rule from going into effect. The CFPB rule would have made it easier for consumers to file class-action lawsuits against banks, credit card companies, and other financial institutions.

What was the CFPB rule? The rule in question, which the CFPB announced in July, would have prevented certain financial institutions from including mandatory arbitration clauses in their contracts. Forced-arbitration clauses often appear in contracts for credit cards and bank accounts.

Why the CFPB created the rule. Banks and credit card companies usually argue that arbitration is the fastest, easiest way to settle consumers' disputes. The CFPB believed, however, that arbitration clauses tend to let banks off the hook because these clauses often block people from starting or joining class action lawsuits. This is because no matter how many people a company harms with the same conduct, most arbitration clauses require those people to bring individual claims against the companyoutside of the courtsthrough arbitration. Companies know that people rarely spend time or money pursuing relief when the amounts at stake are relatively small, and few people enter into arbitration. So, by using forced-arbitration clauses, financial companies can avoid accountability and continue to cause harm to consumers. For example, a class-action lawsuit against Wells Fargo for secretly opening as many as 2 million bogus bank accounts for customers was blocked by arbitration clauses.

The CFPB rule wouldn’t have gotten rid of arbitration entirely, but it would have guaranteed consumers the option of settling their disputes through lawsuits.

Congress kills the rule. On October 24, 2017, Republicans voted against the rule in a 51-50 vote, with Vice President Mike Pence casting a tie-breaking vote to rescind the rule. In November 2017, President Trump signed the resolution, thereby rendering the rule “of no force or effect.”

CFPB Director Richard Cordray warned that companies like Wells Fargo and Equifax—a company whose data breach led to millions’ of consumers’ social security numbers, drivers’ license numbers, and other sensitive personal information being stolen—can continue to break the law without worrying about lawsuits from their customers.

Effective date: October 24, 2017