Law and Regulations

CFPB director: Rule will help customers, enable class action

Consumer agency aims to restore rights to sue banks
Consumer agency aims to restore rights to sue banks

For anyone who's ever been frustrated with fees or overcharges on bank account or credit card, the option to join a class-action lawsuit may become easier if the Consumer Financial Protection Bureau (CFPB) has its way.

The CFPB's proposed rule would would allow consumers to lodge class-action lawsuits against financial institutions. Richard Cordray, director of the CFPB, told CNBC's "Closing Bell" that arbitration clauses are hidden within the fine print, in which "consumers are forced to act alone."

Most consumers "don't realize that in that contract may be buried an arbitration clause, which dictates how any dispute would be handled," he said in an interview.

"For example, if they're overcharged $50, this would not allow them to go to court. They couldn't join with other groups of consumers who have been similarly overcharged to get justice," Cordray explained.

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Some critics argue that the CFPB's proposed rule would lead to an uptick of litigation for financial institutions, largely benefiting lawyers. However, Cordray said the bureau's primary concern is the welfare of the customers, some of whom may not think a lawsuit is worth the effort.

Account holders "who are very often harmed on a massive scale for small amounts are not able to pursue group claims...[are] going to be denied justice altogether. Our study found that very few consumers would ever bother to pursue a $50 fee or $100 overcharge by taking it to court," Cordray said.

The U.S. Chamber of Commerce, however, disagrees that the proposed rule will help consumers as the CFPB intends. In a statement last week, the Chamber of Commerce called the proposal "a wolf in sheep's clothing" that would do more to help attorneys than the average account holder.

"The CFPB should go back to the drawing board. Its mission is to protect consumers, not enrich trial lawyers," it added.

— CNBC's Stephen Desaulnier contributed to this report.