New York Times Op-Ed by Richard Cordray, Director Consumer Financial Protection Bureau
When a data breach at Home Depot in 2014 led to losses for banks nationwide, a group of banks filed a class-action lawsuit seeking compensation. Companies have the choice of taking legal action together. Yet consumers are frequently blocked from exercising the same legal right when they believe that companies have wronged them.
That’s because many contracts for products like credit cards and bank accounts have mandatory arbitration clauses that prevent consumers from joining group lawsuits, forcing them to go it alone. For example, a group lawsuit against Wells Fargo for secretly opening phony bank accounts was blocked by arbitration clauses that pushed individual consumers into closed-door proceedings.
In 2010, the Consumer Financial Protection Bureau, which I direct, was authorized to study mandatory arbitration and write rules consistent with the study. After five years of work, we recently finalized a rule to stop companies from denying groups of consumers the option of going to court when they are treated unfairly.
Opponents have unleashed attacks to overturn the rule, and the House just passed legislation to that end. Before the Senate decides whether to protect companies or consumers, it’s worth correcting the record.
It is true that the average payouts are higher in individual suits. But that is because very few people go through arbitration, and they generally do so only when thousands of dollars are at stake, whereas the typical group lawsuit seeks to recover small amounts for many people. Almost nobody spends time or money fighting a small fee on their own. As one judge noted, “only a lunatic or a fanatic sues for $30.”