The White House announced that President Donald Trump signed a Congressional resolution allowing banks to block customers from filing class-action lawsuits.
According to news from Reuters, the resolution kills a Consumer Financial Protection Bureau (CFPB) rule that was set to go into effect next spring, giving bank customers the option to file class-action lawsuits to lower their legal costs.
The CFPB rule also barred banks, credit card issuers and other financial companies from requiring customers to sign away their rights to join group lawsuits and agree to take potential disputes to closed-door arbitration as a condition of opening accounts.
Equifax included a mandatory arbitration clause in free credit monitoring it offered to the more than 145.5 million consumers affected by its massive cyber hack, but later removed it. And Wells Fargo customers affected by last year’s fake accounts scandal have been prevented from suing because of clauses in contracts they signed for legitimate accounts.
While Republicans argued that class action suits only benefit attorneys and that arbitration is faster and leads to larger awards, Democrats believe that arbitration is rigged against customers and that the Constitution guarantees a right to a trial.
Although CFPB Director Richard Cordray, a Democrat appointed by former President Barack Obama, directly asked the president to veto the resolution, Trump signed it. It was passed under the Congressional Review Act, which will prevent regulators from creating a similar rule in the future, and “mandatory arbitration clauses” will probably remain in contracts for decades.
In fact, this move could also protect a company’s ability to block customers from suing in a variety of non-financial services. Education Secretary Betsy DeVos is even working to keep the clauses in contracts related to higher education.