A federal consumer watchdog agency has issued a new rule that will prevent credit card companies and banks from requiring customers to agree to settle disputes by arbitration rather than going to court.
In a statement released Monday, the Consumer Financial Protection Bureau explained:
“Hundreds of millions of contracts for consumer financial products and services have included mandatory arbitration clauses. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for individual cases brought in small claims court. While these clauses can block any lawsuit, companies almost exclusively use them to block group lawsuits, which are also known as ‘class action’ lawsuits.”
CFPB Director Richard Cordray said the current rules “make it nearly impossible for people to take companies to court when things go wrong.” He said the new rules would “stop companies from sidestepping the courts.”
The CFPB has a website and a video explaining the new rule.
The requirement is set to take effect in 60 days.
The Associated Press notes: “Consumer advocates have been pushing for years for stricter federal regulation of these types of clauses. But the move is likely to face pushback from the banking industry and the Republican-controlled Congress.”