This is Why It Could Soon Get a Lot Easier to Sue Your Credit Card Company

Glassy bank center with reflections from outside
focusstock/Getty Images

How closely do you read the fine print when you sign up for a credit card, bank account or payday loan?

By signing on a bunch of dotted lines without having fully squinted at all the legalese details, you may have given up your right to sue your financial institution as part of a class-action group.

But a new rule the Consumer Finance Protection Bureau adopted last week seeks to give you the right to sue.

Is Arbitration-Free the Way to Be?

By limiting customers to arbitration or individual small-claims lawsuits, financial institutions prevent customers affected by the same practices from pooling their power as a group. Arbitration can be prohibitively expensive, and filing in small-claims court can take a long time and comes with fees of its own.

The CFPB illustrates the issue with this example in a video: If your bank charges you $20 by mistake and won’t give you a refund, you probably don’t have the time or money to sue the bank on your own. You just say “Goodbye, money, nice knowing you” and resign yourself to the power of the bank. But who knows how many other people who use the same service have experienced the same inconvenience?

The new rule wouldn’t prohibit arbitration clauses as long as those clauses don’t restrict consumers from taking part in group legal action. Specific language for such clauses in new contracts will have to follow guidelines set forth by the CFPB. If you open a new account after the rule goes into effect, you’ll have this additional protection.

The new rule could go into effect next year, unless Congress blocks it using the Congressional Review Act, which allows lawmakers a final say on new federal regulations. If Congress doesn’t like the CFPB rule when it gets published in the Federal Register, members have 60 legislative days (days when Congress is actually in session) to vote against it by majority vote.

Why Big Banks Hate Class-Action Lawsuits

By limiting the ways consumers can take legal action against them, financial institutions almost guarantee they won’t have to answer to customers after messing up.

When the CFPB collected data for a 2015 report to Congress about arbitration practices, it asked consumers what they’d do in the event of noticing an incorrect fee on their credit card bill.

“Consumers rarely consider bringing formal claims in any forum, arbitration or litigation, as a response — even after exhausting more informal procedures, such as customer service,” the report noted.

Consumers were also found to be “generally unaware” of the arbitration clauses in their credit card contracts. They also don’t know about arbitration clause opt-outs they might have been able to sign up for. Only 2% of consumers with credit cards told the CFPB they would consider legal action to resolve an issue involving a small amount of money.

“By forcing consumers to give up or go it alone — usually over small amounts — companies can sidestep the court system, avoid big refunds, and continue harmful practices,” the CFPB said in a press release. “The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.”

Lisa Rowan is a writer and producer at The Penny Hoarder.

Did this article help put money in your pocket?