A fighting chance for bank customers

From an editorial Friday in the New York Times:

In recent decades, banks, credit card companies and other lenders have made enormous profits from excessive fees and charges.

Consumers have been unable to fight back in court because of forced arbitration clauses in the contracts they signed when opening their accounts. Typically, these clauses bar customers from joining together in a class-action lawsuit, usually the only practical and affordable way to challenge corporations.

On Thursday, the Consumer Financial Protection Bureau proposed powerful new rules that, if approved, will prohibit class-action bans in contracts for consumer financial products.

Justice demands no less. A series of articles in The Times last year found that prohibiting class-action lawsuits typically results in consumers simply giving up in cases that involve alleged overcharging by banks. Private arbitration is no alternative to a day in court, because corporations effectively control the process, including the choice of the arbitrator and the rules of evidence.

Industry backlash is certain. The ban on class-action lawsuits is a hallmark of the anti-regulatory, anything-goes era that culminated in the financial crisis. Changing entrenched attitudes and practices has been a slow process, but the proposed new rules represent progress.