Rule to Enable Consumers to File Class-Action Lawsuits Against Banks Rejected by the Senate

By Michael J. Napoleone

On Tuesday, the Senate voted to kill a rule that would have enabled consumers to join together and file class action lawsuits against banks instead of being forced into individual private arbitration claims. The proposed rule was set to take effect in March 2018, and rather than banning the use of the arbitration provisions outright, it sought to ban those provisions that prevented consumers from joining together to bring class action cases. The position of the Consumer Financial Protection Bureau (take note of the name of the organization), was that the class action lawsuit is an important vehicle through which consumers can band together to hold banks accountable for wrongdoing. While yesterday’s vote was arguably a victory for financial institutions, the result is potentially devastating for consumers.

The main purpose of class action lawsuits is to enable a class of similarly situated plaintiffs to join together to sue a defendant for injuries caused as a result of common actions or inactions. Some of the primary benefits to potential plaintiffs in class action lawsuits include:

  • The ability to seek redress for relatively minor amounts of money.
  • Lower the cost of litigation by enabling costs to be shared among the members of the class.
  • One lawsuit on behalf of hundreds or thousands of plaintiffs puts less strain on the judicial system as compared to hundreds or thousands of separate lawsuits against the same defendant for the same harm.
  • Promotes uniformity for plaintiffs and defendants and reduces the potential for inconsistent results.

The rule proposed by the CFPB was intended to ensure that consumers had the ability to file class action lawsuits against banks. Many agreements that consumers enter into with their financial institutions contain pages of “fine print” that, frankly, no one reads and few laypeople would understand. Contained in these agreements are arbitration clauses which require consumers to waive their constitutional right to a civil jury trial, access to the court system, and more and more often, require that all disputes be submitted to a private arbitration panel for resolution. The choice for consumers who do not want to be forced into arbitration of disputes is to simply not enter into the agreement. This “choice” is generally not a choice at all, as more and more core services are including mandatory arbitration clauses in their agreements, including banks, credit card companies, and your cell phone and internet providers. More telling: most consumers don’t even realize that their agreements contain these waivers.

As an example of the consumer benefit of the class action lawsuit, look to Wells Fargo’s recent  settlement of a class action filed on behalf of consumers for whom the bank opened accounts without authorization. Most individual consumers suffered what would be considered minimal damages; for example, some were charged about $25 in bank fees for accounts they didn’t open. Few if any consumers would go through the expense of retaining an attorney to file a lawsuit over $25; even fewer attorneys would take on such a case. But when you aggregate those damages over thousands of consumers into a single lawsuit, the benefit of a class action become clear. Think $25 isn’t a lot of money? Multiply it out over the thousands of customers that were wrongfully charged a fee and you will understand why the bank settled the claims for $142 million. Without the ability to aggregate those claims into a single lawsuit, Wells Fargo may have been able to retain much of those improperly collected fees.