Mayhall Fondren Blaize

Business litigation: Consumer class-action suits to be limited

Bankers and credit card lenders have long been protected from certain kinds of consumer class actions, both in Louisiana and nationwide. Generally, the courts have in the past enforced provisions in the consumer's contract with the lender that call for arbitration to resolve disputes and which prohibit the filing of class action lawsuits against the institution. In recent years, however, many consumers have challenged the right of banks and other institutions to control their remedies in the business litigation arena.

The main challenge to these clauses is the assertion that they are unconscionable. Consumers have claimed that they have no bargaining power to change the provisions and therefore the agreement is not an "arm's length" transaction that contains the mutual assent of both contracting parties. Usually, the arbitration provisions and class-action prohibitions are inserted in mass preprinted forms that are sent out with credit card approvals.

The conflict was still raging in the courts when the Consumer Financial Protection Bureau passed a rule during the Obama administration that prohibits such provisions from being forced on consumers who open credit accounts. When the new administration took over the reins of government in Jan. 2017, with the same party controlling both houses of Congress, action was initiated to repeal the rule. Both houses have now voted to kill the rule, a move that has been praised by the U.S. Chamber of Congress and the banking interests. The debate, however, has not ended.

Both sides issued statements setting forth their respective positions, with supporters of the repeal praising the fact that the action headed off a potential flood of class-action lawsuits and allowed for sensible resolution of conflicts through arbitration. Consumer groups criticized the repeal, saying that it took away the most powerful tool that consumers had to counter corporate wrongdoing. They also charged that large banks and lenders would not be encouraged to address widespread abuses, such as the Wells Fargo wrongdoing that was revealed and addressed through class-action lawsuits. Business litigation regarding such issues will likely subside with the repeal, both nationwide and here in Louisiana.

Source: Los Angeles Times, "Senate votes to kill new rule allowing class-action lawsuits against banks after Pence casts deciding vote", Jim Puzzanghera, Oct. 25, 2017

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