US watchdog to reinstate customer right to sue banks

The US consumer watchdog, the Consumer Financial Protection Bureau, is promoting a proposal that would re-establish customers’ rights to pursue class-action lawsuits against financial companies. As the rule does not need approval from congress, it seems set to be instituted. The proposal, which would cover bank accounts, credit cards and loans, is intended to counter moves by American companies to stop customers from mounting legal challenges to fraudulent banking activities by forcing them into arbitration. Such arbitration tends to pit individuals against companies and prevents them from joining forces with other borrowers. As a result, many claims are abandoned. The new rules would prevent companies from including a ban on class actions in contracts for financial products.

The nation’s consumer watchdog is unveiling a proposed rule on Thursday that would restore customers’ rights to bring class-action lawsuits against financial firms, giving Americans major new protections and delivering a serious blow to Wall Street that could cost the industry billions of dollars.

The proposed rule, which would apply to bank accounts, credit cards and other types of consumer loans, seems almost certain to take effect, since it does not require congressional approval.

In effect, the move by the Consumer Financial Protection Bureau — the biggest that the agency has made since its inception in 2010 — will unravel a set of audacious legal maneuvers by corporate America that has prevented customers from using the court system to challenge potentially deceitful banking practices.

Honing their plan over decades, credit card companies, banks and other lenders devised a way to use the fine print of their contracts to push consumers out of court and into arbitration, where borrowers must battle powerful companies on their own. Without the ability to pool resources, most people abandon their claims and never make it to arbitration.