Rule Allows “Class Action” Suits Against Financial Institutions


SPRINGFIELD, Mo. — If you’ve ever applied for a credit card or any loans you’ve signed an agreement saying disputes with your lender will be settled in arbitration.

“In other words, instead of going to a court, to a jury, we go to an independent arbitrator who settles the dispute,” said James Philpot, associate professor of finance at MSU. “We generally waive our right to participate in a class action type of lawsuit.”

But consumers will soon have one more option to protect their rights against financial institutions. A new rule issued by the Consumer Financial Protection Bureau removes that requirement. A new rule set to take effect in January of 2018 would allow people to take banks and credit card companies to court.

“That allows the consumers to form a class, subjects the lenders or the banks to potential class action liability,” Philpot said. 

A few consumers say the more options for the customer the better.

“I think it’s a good idea,” said Sandy Dickenson. “It would be nice to have another tool to use to try to correct your credit problems.”

“The deck has been kind of stacked against the consumer for the most part, in favor of the financial institutions, and this gives the consumer a little bit more control, a little bit more freedom,” said Gary Moss.

Philpot says, in theory, it sounds good, but generally, the payout for consumers in class action suits can be small.

“If it’s really good for consumers is yet to be seen,” he said. “Members might get something like $50, $100. The attorneys get the lion’s share of any sort of settlement in class.”

But having another option has its pros.

“The class action has the advantage for the consumer of ‘I don’t have to really do anything, I can pull resources with everybody’,” said Philpot.

He says to avoid any future disputes, read the agreement before you sign it. 

“That way you at least know what your rights are and know what you can and can’t expect from your lender,” he said.

Philpot says for institutions, this might make things more complicated, but as of now, there are criminal laws in place that if an institution violates those, they are subject to criminal sanctions.

This new rule goes into effect in January of 2018, but could still be overturned.

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