Treasury Faults Arbitration Rule Aimed at Protecting Consumers

Ecija, Norman Joye A.

This article presents the effects of class action suits and mandatory arbitration. Class
action suits against Wall Street firms could trigger unsound lawsuits and increase the cost of
credit, the Treasury Department says. This has some truth behind it because if more lawsuits
are being charged to a company, the more legal expenses it may incur which might lead to
the company’s financial crisis. The expenses that these company incurs should be
replenished by increasing the cost of its services or its products. Hence, one of the
disadvantages of this class action lawsuits is the domino effect that would ultimately be borne
by its end users- the consumers.

These financial rules are undergoing changes such as the arbitration rule, which is set
to take effect in 2019, will prevent credit card companies and other financial institutions from
using the fine prints of contracts to ban class actions lawsuits or force consumers into
arbitration, a private system where an individual has to go up alone against a corporation.
This is a good measure undertaken by American authorities to actually lessen the current
problem being faced by consumers which is the increasing cost of services.

The rule does not explicitly ban mandatory arbitration but critics say that the rule will kill
mandatory arbitration. It was also found that mandatory arbitration clauses allow companies
to avoid accountability for breaking the law and cost consumers billions of dollars by blocking
group lawsuits. On this kind of arbitration, it gives the corporation a huge advantage because
of its financial capabilities. Also, legal authorities blames such mandatory arbitration clauses
for enabling corporations to opt out of the court system and depriving Americans of one of the
few ways to fight abusive business practices. Some firms such as Equifax and Wells Fargo
has employed this scheme to avoid possible lawsuits and to uncover its fraudulent activities
and violations to its consumers. Also, by arbitration, it gives them an undue advantage over
such proceedings because arbitration to one or some consumers usually do not prevail in
favor of them against a big corporation.

The arbitration rule stems from concerns about the growing prevalence of financial
contracts stipulating their use. Companies, before you can avail of their services, usually
mandates a mandatory arbitration if disputes arises. As the records show, arbitration saved
some companies of their breaches against its consumers.

This article gives us the importance of court actions particularly class actions over
arbitration. Class actions are intended to help big groups of consumers to recover from their
individual losses. Also, it can be used to assail the questionable practices of companies.
Arbitration, as used by these companies, are becoming prevalent as a tool to avoid financial
losses and as a tool to avoid court actions.