If you have a bank account, a loan, or a credit card, chances are you've signed an agreement that includes a mandatory arbitration clause. In the fine print, the clause could deny you the right to engage in class action lawsuits against the financial institution. 

Today, the Consumer Financial Protection Bureau proposed a new rule that would put an end to that.

“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said Richard Cordray, the director of the CFPB, in a statement. He added that such terms mean that “many banks and financial companies avoid accountability.” 

Proposed Rule Is Important for Consumers

The problem has been a growing one. In recent years, financial companies have been adding mandatory, or forced, arbitration clauses into the fine print of their consumer contracts, according to the CFPB. Say your bank consistently charged excessive overdraft fees on your checking account. You might want to hold the bank legally accountable and expose its wrongdoing. The most effective way to do that would be to join with other, similarly harmed customers and participate in a class action lawsuit. But the arbitration clauses usually prevent you from banding together with others to do so.

"Consumers have been unfairly trapped by forced arbitration clauses buried in the fine print of the contracts that banks, credit card companies, and payday lenders force them to sign," says George Slover, a senior policy counsel for Consumers Union, the policy and advocacy arm of Consumer Reports. "The proposed CFPB rule will begin to reopen the courthouse doors to consumers who have been wronged by dishonest and abusive financial service practices."

Paul Bland, executive director of the consumer rights law firm, Public Justice, agrees. "The proposed CFPB rule is badly needed and long overdue," he says. "It is flat out proof that the CFPB is looking out for consumers.”

More Needs to be Done

While the proposed CFPB rule would allow consumers to file class action lawsuits, they don't prevent financial companies from requiring consumers to agree to arbitration to pursue individual claims. Thaddeus King, an officer with the Pew Charitable Trust Consumer Banking Project, says that's also a problem. "The outcome of arbitration hearings are generally confidential, there is no requirement that the arbitrator have legal experience, and there is almost no way to appeal a decision," he says.

Consumer advocates say they hope the agency will collect enough evidence on the arbitration process to ban arbitration clauses altogether.

The public has 90 days to comment on the proposed CFPB rule. The CFPB will then decide whether it will amend or finalize them. There will be another 180 days before they take effect, likely in late January 2017.

We believe that consumers should not be forced into arbitration. Congress should enact legislation to make arbitration a voluntary option in all consumer contracts. Until that happens, here's how you can protect yourself