While America is no doubt a most litigious society, guess who it’s getting harder to sue? Your bank. According to The Pew Charitable Trust, many account agreements restrict the legal recourse available to consumers who have disputes with their banks.
You may not have even been aware of the clauses in contracts that can be hard to find in all the fine print. But often, whether you’re signing on for a credit card, payday loan, or student loan, you give up your right to participate in a group lawsuit if a company breaks the law, or otherwise harms you.
In Pew’s latest research of the dispute resolution policies and practices disclosed by the 50 largest retail banks in the U.S., which represent two-thirds of deposits nationwide, they found that nearly 75% of the banks’ account agreements include clauses that mandate pre-dispute arbitration – a private process involving a third-party decision-maker whose decision is largely binding, giving the consumer limited opportunity to appeal. Worse still, it prohibits consumers from seeking remedy in court. Nearly 75% of the banks studied prohibit class-action lawsuits, which allow consumers to band together to challenge the big guns in a case that might not make sense financially or otherwise to bring on their own. Ninety-one percent of the banks also bar consumers from having their disputes heard by a jury rather than a judge. According to Pew, more than 90% of these banks include at least one provision restricting consumer’s dispute resolution options.
Consumers are none too happy. A Pew survey last year found that generally most consumers don’t feel that banks should be allowed to deny them access to the legal system, particularly to have the ability pursue a class-action lawsuit. There is strength in numbers. How else can people put banks too big to fail in check?
Almost 90% of consumers polled by Pew said they want to be able to participate in a group lawsuit. But getting what they want may be more than a notion. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the Consumer Financial Protection Bureau to limit or ban provisions in account agreements that restrict access to class-action litigation, and the bureau proposed rules in May that would bar financial institutions from denying customers this access.
Pew urges the CFPB to get on with finalizing rules that give consumers the ability to choose how they pursue a dispute, as opposed to allowing financial institutions to shut them down by limiting their options.
Pew concludes, “Consumers should be able to pursue legal action against their banks. Class actions, in particular, are a cost-effective dispute resolution option for groups of consumers with small claims. Pew urges the CFPB to move forward expeditiously with these new regulations.”
In the meantime, says Sean Coffey, media and program evaluation manager with the California Reinvestment Coalition, “We’re eagerly waiting to see what happens with the CFPB’s proposal to end forced arbitration. For now, if direct outreach to your bank doesn’t work, airing your concerns via your bank’s social media channels can also be another way to grab their attention. You can also submit a complaint to the CFPB.”