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Here's why you may not be able to sue your bank any time soon

Key Points
  • The complaint by a coalition of business groups argues arbitration is better for consumers than courtrooms.
  • The rule, effective March 19, would ban companies from requiring disputes to be settled by arbitration.
  • Congressional Republicans have until mid-November to overturn it.

Waiting for the day you'll be able to take financial firms to court? Don't hold your breath.

A new consumer-protection rule that would make it easier for customers to sue banks, credit-card companies and other lenders is now facing its own legal attack. A lawsuit filed Friday by a coalition of business groups — led by the U.S. Chamber of Commerce — challenges the rule and requests a delay in its March 19, 2018, compliance date.

The move comes as Senate Republican leaders appear to be a few votes shy of what's needed to pass a House-approved measure to overturn it.

Former Equifax CEO Richard Smith: Arbitration clause was never intended to apply to breach

Congress this week is grilling Wells Fargo and Equifax executives about their respective failures related to consumer-protection issues, which some Washington watchers say makes for a poor backdrop to a vote on the resolution. Under the Congressional Review Act, lawmakers have until mid-November to act.

Consumer advocates dispute critics who say the rule lines the pockets of trial lawyers — who typically get a sizable piece of the pie in class-action lawsuit awards — instead of benefiting customers.

"This is all really about [these companies] making it as hard as possible to let consumers have legal recourse," said Michael Best, director of advocacy outreach for the Consumer Federation of America. "It's not realistic, fair or effective to expect consumers to one by one hold large corporations accountable through arbitration."

Richard Smith, former chairman and CEO of Equifax, Inc., arrives to testify before the U.S. Senate Banking Committee on Capitol Hill in Washington, U.S., October 4, 2017.
Aaron P. Bernstein | Reuters

The rule bans financial institutions from requiring customer disputes to be handled via arbitration. Instead, consumers would be able to file a lawsuit on their own against a financial company or join a class action. Mandatory arbitration clauses already are prohibited in mortgage contracts yet have remained enforceable in other agreements, such as those for credit cards and auto loans.

The lawsuit, filed in U.S. District Court in Dallas against the Consumer Financial Protection Bureau, argues that the agency failed to follow federal law in its rule-making process and used faulty research, among other charges. The CFPB issued its final rule in July.

It's not realistic, fair or effective to expect consumers to one by one hold large corporations accountable through arbitration.
Michael Best
director of advocacy outreach, Consumer Federation of America

A spokesman for the CFPB declined to comment.

The expectation is that business groups will soon file a motion asking the court to put a hold on the rule while it is under judicial review.

"They'll want to tee up this issue as soon as they can," said Alan Kaplinsky, a partner with national law firm Ballard Spahr. "There are a lot of things companies would have to do to comply with the rule by March so it needs to get going before it gets too close to that date."