A proposed rule to block finance companies from forcing customers to resolve disputes through arbitration is “long overdue,” Professor Richard Frankel said during an interview on the Knowledge at Wharton program on Sirius Radio.
Rules that the U.S. Consumer Financial Protection Bureau proposed on May 5 would prohibit banks and other finance companies from requiring that customers waive their right to file class action suits when signing agreements to open their accounts.
“It’s welcome and necessary for protecting consumers who are injured by corporate practices,” Frankel said, referring to class-action bans that are common features of service agreements as “get out of jail free” cards for companies.
Ballard Spahr partner Mark Levin argued that arbitration saves money for both consumers as well as companies, because the cost of litigation is so high.
Frankel said, however, that very few consumers pursue arbitration, a process in which companies maintain a significant degree of control.
Citing a report by the CFPB, Frankel noted that the awards consumers have won through class-action lawsuits greatly eclipsed the amount they’ve recovered through arbitration.
Class action lawsuits also allow consumers to obtain injunctive relief, a means of forcing companies to modify problematic practices, said Frankel, an authority on consumer arbitration agreements and director of the Appellate Litigation Clinic.