Home » Bad Business » CFPB Targeting Fine Print in Bad Credit Loans, Bank Contracts

When you arrive at a payday loan store or at a financial institution in order to apply for a certain product, you are given a several-page contract that consists of a lot of fine print. Instead of reading each paragraph, sentence and/or word, you decide to just sign it and leave the establishment as quickly as possible. It may have been necessary to read, but you didn’t bother.

For years, consumers have attempted to file lawsuits against banks, payday loan lenders and other credit agencies. But these lawsuits have been dismissed because of something in the fine print. This left consumers frustrated and disgruntled, kicking themselves for not reading the clause in customer agreements.

The Consumer Financial Protection Bureau (CFPB), a consumer finance watchdog agency, is now inching ever so closer to preventing the big banks, payday loan lenders and other financial services from ending class action lawsuits launched by customers. The federal agency proposed a series of new rules Wednesday that would ban financial services institutions from adding a clause in customer agreements that prompts class action legal claims to be handled in arbitration.

Mature couple signing contract in lawyer's officeCorporations favor arbitration because it ensures consumers leave their claims out of the courtroom and away from the general public. Unfortunately for consumers, they can’t oppose any of these clauses because they’re inserted in nearly all financial products and services, like payday loans, student loan debt and checking accounts. But even if they don’t include the clause, the firm can add them to these contracts whenever they want.

Earlier this year, a study found that three-quarters of consumers were unaware if they could be subjected to an arbitration clause in any of their financial services agreements. Also, just seven percent of those consumers who signed an agreement were aware that they were restricted to file a lawsuit.

“[Companies] provide themselves with a free pass from being held accountable by their customers,” said Richard Cordray, CFPB director, in a statement. “Many violations of consumer financial law involve relatively small amounts of money for the individual victim. Group claims often are the only effective way consumers can pursue meaningful relief for harms that can add up to large amounts of money for financial providers.”

Soon after going public with these proposals, the CFPB will meet with a panel of small businesses to garner any type of feedback. A formal proposal of the new rules will be submitted later this year, which will follow by a public consultation period. It is unknown as to when a final ruling would be made. It could take a year or two.

It has been reported that numerous lawmakers and financial industry representatives will combat the ideas. Experts say they will likely present the case that arbitration offers fast and more cost-effective solutions for consumers.

Nevertheless, under the 2010 Dodd-Frank bill, the CFPB was created to review an immense list of financial business practices. This included the use of arbitration clauses, and, based on its findings, were permitted to put forward any regulations they saw fit.

This year already, the CFPB has instituted new limits on the auto loan and mortgage markets. Sometime this year, the CFPB will draft rules pertaining to the payday loan industry, debt collection and bank overdraft fees.

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