Wallace & Graham

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Class Action Lawsuit Settlement in favor of Military Families signals to Senate that they need to Support the CFPB Rule to protect consumers

Our firm is pleased to report a recent settlement in July 2017 between Bank of America and military families.   

The plaintiffs in the class actions consisted of a group of military families, on active duty service and deployments, who were overcharged and deceived by Bank of America.

The 130,000 military families that took part in the class action against Bank of America reached a settlement of nearly $30 million.

The lawsuit was filed after Bank of America failed to follow the Service members Civil Relief Act or SCRA, a law passed by Congress in 2003 to reduce the burden faced by military families. According to the SCRA, when a service member is called to active service status by the military, the banks are required to reduce the interest rates on those debts owed to a 6% interest rate – according to military families taking part in this class action, Bank of America failed to comply with that law.

Instead, Bank of America failed to apply the required interest rate reduction and then sent deceptive monthly statements that suggested the reduction had been applied, when in-fact Bank of America had been charging a much higher interest rate, sometimes as high as 27%.

The result of Bank of America’s deceptive actions, some active service members lost their homes and most valuable assets.

A North Carolina federal court ruled in favor of the military family members, and the settlement of nearly $30 million will be distributed among them, using calculations based on accounts records supplied by Bank of America to determine the amounts owed to each family.

The amount owed to each of the families will be determined using calculations based on the records supplied by Bank of America, and the funds will be distributed accordingly.

This case is unusual because most banks and large financial institutions include language in consumer contracts that prevent consumers from file lawsuits to seek justice when they have a dispute or feel as if they have been cheated or deceived by such an institution. This language can usually be found the section of a contract that discusses the rights of each the parties to the contract, called an arbitration clause, or arbitration provision.

Most consumer banking and financial institution contract include an arbitration provision. Generally, an arbitration provision requires that if a dispute occurs, all parties to the contract agree to consent to arbitration to resolve that dispute. Arbitration is a private process that does not include a jury as the decision-maker. In addition to the arbitration provision, some contracts even have a provision that bans participation in class action lawsuits, like the one filed by military families in North Carolina.

Our firm also encourages consumers to be wary of both arbitration agreements and class action bans when entering into a contract, because they disallow a group of people that have cases with facts almost identical that suffered similar injury, from pursuing relief as a group.

Our firm joins other law firms and public interest organizations like Public Justice – a national nonprofit consumer protection law organization – in pointing out that the reason military families were able to have their day in court against Bank of America was made possible by Bank of America not having an arbitration clause in its contract.

As of July 2017, the Consumer Financial Protection Bureau (CFPB), an agency of the United States government responsible for consumer protection in the financial sector, has been working to protect consumers from the injustice that consumers suffer because of practices like forced arbitration and the banning of class action lawsuits. In July the CFPB, issued a rule that prohibits banks and payday lenders from using arbitration clause. The prohibition of arbitration provisions in banking and payday lending contracts allows for individuals to band together to file a class action lawsuit, pooling their resources together, instead of being forced to fight against a Goliath organization, like Big Banking, on an individual or case-by-case basis.

By issuing a prohibition against arbitration clauses, the CFPB has offered consumers a new avenue of protection from potential exploitation – and fleecing at the hand of unscrupulous banks and lenders.

In the coming weeks, Senate will be making decisions about the enforcement of consumer protection laws. If they decide to revoke the ability of the CFPB to make rules, like the prohibition of the arbitration provision, Senate will be protecting the pockets of Big Business and Big Banking, and not acting in the best interest of the general public.