Class action lawsuits have been a traditional legal recourse for groups of consumers who believe that a corporation has wronged them. They have been effective. Simultaneously, corporations (especially in the financial services sector) constantly trying to reduce litigation expenses have increasingly built consumer arbitration clauses into their consumer agreements. This maneuver neatly eliminated litigation options by consumers. Both sides of the argument have merit as Elizabeth Dexheimer reports (“Suing Your Bank Could Soon Be Easier” Bloomberg Businessweek, 5/16/16–5/22/16, pp. 49–50):
“Consumer advocates say class actions are an essential tool to help the public win relief and to hold companies accountable for bad behavior. Industry groups argue that curbing arbitration clauses will result in more frivolous lawsuits and higher legal costs that banks will ultimately pass on to consumers.” (p. 49)
Which side is right? That is a good question especially now that the Consumer Financial Protection Bureau is considering a new rule that would require financial institutions to eliminate their consumer arbitration clauses. If the new rule were passed, consumers would again have the ability to file class action lawsuits against financial services corporations.
Although both sides of this one could be argued endlessly, here is my take on the situation. I’m hoping the new rule is approved and the right of consumers to file class action lawsuits is restored. Moreover, I think that the obvious consumer upside is surpassed by an even greater upside for consumers and corporations together.
The renewed possibility of class actions being filed should motivate corporations to take quantum steps to improve their customer experience. Let’s face it. The more stellar that customer experience is, the less reason consumers will ever have to believe that they have been wronged by the corporation. The consumer has a better customer experience while the corporation enjoys lower litigation costs. That is a win-win.