Fortune Magazine notes that the Consumer Financial Protection Bureau has issued a new rule that will make it easier to launch class-action suits against banks and other financial institutions that issue credit cards. The new rule prohibits credit card issuers from including arbitration clauses in consumer contracts. The effect of these clauses was that consumers who believed they had been wronged by a bank or other financial institution would have to submit to an arbitration process rather than start or join in a class action. Most people who believed that they had been ripped off by a credit card company do not bother to go through the cumbersome process.
One extreme example of how a bank can abuse its customers was a practice followed by Wells Fargo that involved setting up accounts and charging fees to customers who did not ask for them or need them. In some cases, peoples’ credit ratings were severely impacted. Under pressure from Congress and the regulators, Wells Fargo eventually agreed to stop the practice and pay out $142 million in a class-action settlement.
The new rule means that all banks and other institutions will be subject to class actions when they decide to misbehave. In the old system, they might have to pay a few hundred here and a few thousand there to consumers who bothered with the arbitration process. Now, a class action of hundreds or even thousands of outraged customers would have the potential to cost credit card issuers dearly. The prospect may provide an incentive for these institutions not to be abusive.
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