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In recent years, credit card companies and banks have started adding clauses to their contracts that allow them to resolve any claim by individual arbitration. This clause may seem harmless, but it allows companies to evade the judicial system and prevent customers from obtaining relief when they have been wronged by a finance company.

Typically, when a finance company—whether a credit card company or a bank—engages in harmful business practices or predatory conduct that victimizes consumers, the monetary damage per consumer is relatively small. Usually, the only legal recourse for consumers is to bring litigation, but such litigation is not economically feasible when dealing with relatively small economic injuries. In other words, it costs much more to sue the credit card company than you will get back from a jury award. Such litigation only becomes economically viable when consumers can aggregate their claims—typically by filing a class action. The class action allows hundreds of consumers with the same claims to obtain relief, equally share in the expenses of bringing the lawsuit, and still recover their losses.

To stop class action lawsuits, the finance companies started including provisions in their contracts (that consumers usually don’t read) that allows them to make each consumer litigate outside the regular court system, without a jury, and individually. By limiting the claims to individuals only, the finance company ensured its consumers would be unable to leverage the economies of scale to address any wrongful conduct by the company. Not only does this seemingly “harmless” clause make litigation too expensive for the ordinary consumer, it also takes away consumers rights to “trial by jury”.

The Consumer Financial Protection Bureau (CFPB) is putting a stop to this unfair
practice. An independent agency of the United States government responsible for
consumer protection in the financial sector, the CFPB, has issued a new rule restoring the ability of consumers to join together to form class action lawsuits and seek relief. After studying the use of mandatory arbitration clauses in consumer financial markets, the agency determined that such practices are unfair to consumers. The CFPB is authorized to issue regulations that are in the public interest, that are for the protection of consumers, and that are consistent with the CFPB’s study of arbitration. The CFPB’s new rule prohibits finance companies from using mandatory arbitration clauses and is expected to deter companies from engaging in predatory and/or harmful business practices as well as assist consumers in their pursuit of justice.

If you think your credit company is engaging in predatory or exploitative practices,
call The Cochran Firm at 1-800- THE FIRM.

(Originally written and posted by The Cochran Firm – Dothan)