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Arbitration agreements are a fairly common practice across the financial and banking industries. When consumers have a dispute with a credit card or banking provider, or contend that their financial servicer violated the law, arbitration agreements require the consumer to pursue the disagreement through arbitration rather than litigation.

Arbitration allows disputes to be handled in a more cost effective and efficient manner, often in a shorter period of time than a lawsuit. It also means that disputes are heard by a panel of arbitrators rather than a jury, and that the results of the arbitration can be kept fairly private.

All of these advantages makes arbitration preferable for banks and financiers, and courts generally allow companies to require their customers to go to arbitration through arbitration agreements. However, new rules have made clear that these agreements may not require consumers to waive their right to class action litigation.

The Right to Class Action Litigation in Rancho Cucamonga

In many instances, consumers who have disputes with a company will bring their claims through individual litigation, where they assert that the particular actions or decisions of a company have caused them damage.

In certain situations, however, a group of consumers may all claim that the same decision or action by a company has caused them harm. For instance, this often happens in medical cases where large numbers of patients are harmed by the same procedure or drug. It can also happen when consumers are deprived of certain financial benefits or opportunities.

These are known as class action cases, and they are a special type of litigation that allows large numbers of plaintiffs to resolve their claims all at once. All individuals have the right to participate in class action litigation if they have relevant claims.

Arbitration Agreements and Class Actions

As stated previously, California courts allow companies to require consumers to handle their individual lawsuits through arbitration by signing an arbitration agreement. However, some companies have tried to use this language to also prevent consumers from participating in larger class action litigation.

Recently, the Consumer Financial Protection Bureau (CFPB), instituted new rules clarifying that companies may not use arbitration agreements in this manner. Under these rules, the language in arbitration agreements may not bar plaintiffs from joining in class action litigation, where it is relevant to their claims.

The practical effect of these new rules means that:

  • consumers will have more options for pursuing claims against financial and banking companies, but

  • companies will run the risk of increased uncertainty when dealing with potential disputes and higher litigation budgets in the event that class action is pursued.

California Attorneys Monitoring Your Compliance With CFPB Rules

If  you are currently working in the consumer finance and banking arenas and have an existing arbitration agreement that you use with consumers, there is a good chance that you will need to review the language of your agreement and update it to comply with the CFPB’s rule changes. Failure to do so could lead to problems down the road.

At CKB Vienna LLP, our banking industry attorneys can advise you on the necessary changes to keep your arbitration agreements compliant with current rules and restrictions, and keep you advised of further changes that may occur. For more information, contact us online or at 909-980-1040.

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