The Consumer Financial Protection Bureau has quantified the impact of getting rid of the class-action waivers in consumer financial contracts, which prevent customers from filing class-action lawsuits.
According to a report, by banning the class-action waivers, the CFPB expects a minimum of 1,200 additional class-action suits a year, amounting to more than $100 million in annual legal fees. While that is a victory for consumers in the eyes of the CFPB, banks, credit card issuers and other financial institutions don’t agree, arguing in letters to Richard Cordray, director of the CFPB, that class-action lawsuits aren’t the ideal way to resolve consumer disputes.
The CFPB’s researchers estimate that there will be at least 6,042 more class-action lawsuits filed against a lot of the 53,000 businesses covered by the new rule. That’s in the first five years, but the same amount is expected to continue on an ongoing basis. While it may cost financial institutions more money, the CFPB also estimates consumers will get $342 million a year in payments from settlements of new class-action lawsuits.
Earlier this year, the CFPB started moving toward the rule change that makes it significantly easier for consumers — or, more specifically, groups of consumers — to take banks, lenders and other financial institutions to court in the form of class-action lawsuits. The rule would ban companies from putting mandatory arbitration clauses in new contracts that prohibit consumers from suing as a group. The rules would also require new reporting guidelines about arbitrations as they happen, including mandatory reporting of the outcomes.
In May, the new rule got its first official public hearing. In an interview with PYMNTS, Thaddeus King, an officer in the Consumer Banking Project at the Pew Charitable Trusts, who was at the CFPB field hearing, said that, by and large, the proposed rule change, particularly the ban on class-action waivers as a part of arbitration clauses, was generally popular.
“When we did research, over 90 percent of consumers support the right to go to court and class action and appeals. It wasn’t surprising that the field hearing had a pro-CFPB rule feeling,” King told PYMNTS shortly after the public hearing. “There really weren’t any consumers who have spoken out in favor of banning class actions as part of arbitration.”