Federal regulator moves to mostly ban arbitration clauses

The Chicago Sun-Times reports:

A federal agency tasked with looking out for consumers moved Monday to broadly ban the use of mandatory arbitration clauses, setting up a likely showdown with Republicans who oppose the change and want more control over the bureau in general.

The ban would apply when groups of customers want to file a class-action lawsuit against a bank or other financial company.

Mandatory arbitration clauses are found in the fine print of tens of millions of financial products, from credit cards to checking accounts. They require customers to use a private third-party mediator when they have a dispute, often giving up their right to sue a bank in court.

Because consumers generally don’t carefully read the fine print on the agreements for their checking accounts and credit cards, they are often unaware they are subject to arbitration. Even Wells Fargo banned customers from filing class-action lawsuits against it during the height of its sales practices problems, until pressure from politicians and outside groups led Wells to waive that right earlier this year.

Consumer advocates have been pushing for years for stricter federal regulation of these types of clauses. The clauses, said Richard Cordray, director of the Consumer Financial Protection Bureau, are a way for banks and other financial companies to “sidestep the legal system.”

The CFPB makes its own law.