Tucked into our cellphone bills, credit-card statements, checking accounts, car leases, and private student loans is language most of us never read.
If we have a problem with the company, it says, we can't sue. Instead, we have agreed to something called arbitration.
That may be about to change.
The Consumer Financial Protection Bureau (CFPB) unveiled last week a proposal that could allow U.S. consumers to sue rather than be subject to mandatory arbitration. The agency is seeking comments from the public until June 12.
The outcome could be a win for the consumer, advocates say.
"We applaud the Consumer Financial Protection Bureau for proposing a strong rule to prevent lawbreaking financial institutions from using 'fine print' arbitration clauses to ban class actions," said Joanne Doroshow, executive director of the Center for Justice and Democracy.
"Class actions are critical for holding companies accountable in court," she said. "Since most cases are too expensive and difficult to bring individually, these ripoff clauses result in the disappearance of claims and immunity for the wrongdoer. The CFPB has taken an important step to ensure corporate accountability and protect consumer rights."
In announcing the proposed rule Thursday, CFPB director Richard Cordray said, "Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong. Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them."
But changing the rule could be devastating for small businesses, according to a December report by the Small Business Review Panel.
One business owner believed he would lose a line of credit without arbitration agreements to block class actions. Another said that the proposal would increase her business' borrowing costs, and that drawing on its credit to pay litigation costs related to a class action would raise warning signs for her lender. Still another stated that "mere exposure to class-action liability would cause his business' lender to 'raise an eyebrow,' " the report said.
Sylvia Aparicio, senior vice president of First Community Bank of Texas, wrote: "One case could wipe out or seriously harm the economic well-being of the bank, as well as its reputation. You don't have to be wrong to be put out of business."
As currently written, said Craig Wells, president and CEO of Cash Plus, the CFPB's proposal "favors class-action lawyers' interest above all others."
"The average consumer in the bureau's study collected only $16.87 in relief, while class counsel collected $97 million. Consumers will suffer by losing access to credit and other services when financial service centers such as Cash Plus shut down due to inevitable class litigation costs," he said.
Where did this CFPB rule-making come from?
In the 1990s, some financial-services providers began including arbitration clauses in their form consumer agreements.
They could be used to block class-action litigation, and often class arbitration as well. When sued in a class action, companies could use the agreements to dismiss or stay the class action in favor of arbitration.
Discover, for instance, disclosed that it relied on arbitration agreements for the express purpose of shielding itself from class-action suits by credit-card holders, according to CFPB.
Then in 2006, Congress passed the Military Lending Act, which prohibited the use of arbitration in loans and credit to active service members, and their spouses and dependents. In 2010, Congress also got rid of arbitration for mortgages and home-equity loans. And the Dodd-Frank reform act itself called for CFPB to get to work studying the arbitration issue and possibly spell out new rules.
Now's our chance to weigh in. Comment on the proposal, using Docket No. CFPB-2016-0020, by any of the following methods:
Electronically at http://www.regulations.gov.
By email, via FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2016-0020 in the subject line of the message.
By mail, to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G St. N.W., Washington, D.C. 20552.