Contracts that prevent consumers from filing class action lawsuits against banks could soon be illegal under new rules proposed by the Consumer Financial Protection Bureau (CFPB). Mandatory arbitration clauses—a common part of contract language—require consumers to use private arbitration rather than going to court to settle disputes with financial institutions.

Ballard Spahr partner Alan S. Kaplinsky testified at the CFPB hearing on arbitration clauses. He acknowledged that what made arbitration clauses attractive to banks is their impact on class action litigation. Now, consumers will have no option but to take banks to court if they believe they have been wronged. This might not benefit consumers in the long run since they are generally outmatched in court.

“Companies, in general, believe they have an advantage over consumers in court,” Mr. Kaplinsky said. “If a consumer wants to go to court, they have to take time out from work. Cases last longer (than in arbitration). That’s good. Companies like to drag things out.”