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New Consumer Rule Restoring Class Actions Already Being Challenged

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Thursday, July 13, 2017   

SEATTLE -- This week, the Consumer Financial Protection Bureau announced a rule that consumer groups say is a big win for Americans who want to settle corporate wrongdoing in court.

The rule bans companies from using forced-arbitration clauses in order to avoid lawsuits, meaning consumers can once again band together in class action suits. Members of Congress already are looking to dismantle the rule. But Larry Shannon, government affairs director at the Washington State Association for Justice, said the rule is necessary.

"This rule restores consumer protection,” Shannon said. “It ensures real accountability for these companies and it acts as a deterrent to keep them from engaging in this kind of behavior in the first place."

Shannon used the example of a cell phone company in Washington that was taking a $35 fee without explanation. A single consumer would have a hard time justifying paying thousands of dollars in legal fees to recoup the money. But a class action lawsuit would make the case more affordable.

Opponents of the rule say arbitration is a cheaper and faster way for consumers to get justice.

Shannon said forced arbitration clauses also keep cases out of court, making it harder to identify bad actors. A scandal at Wells Fargo involving the opening of fake accounts last year highlighted the need for this rule. In that case, consumers were blocked from suing the bank because of a forced arbitration clause in their contracts.

Shannon said nursing homes use these clauses in a more troubling way.

"You don't get into nursing homes unless you have signed away your right to hold the nursing home accountable for the treatment to your loved ones,” he explained. “And I think that's an outrage. And this rule addresses that as well."

Republican Sen. Tom Cotton of Arkansas said he has started drafting a resolution to rescind this new rule. Shannon said he hopes it stays in place, contending that forced arbitration has become a "license to steal" for the companies that use it.

"Who's Congress going to stand up for here?” he asked. "Are they going to stand up for consumer protections, for people in America, or are they going to go to bat for Wall Street and banks and financial institutions and big employers who abuse these clauses?”


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