WASHINGTON (Reuters) - New rules proposed on Thursday by a U.S. consumer watchdog would block credit card companies, banks and other firms from forcing customers to waive their rights to join class action lawsuits and settle disputes only through arbitration.

The Consumer Financial Protection Bureau said financial firms should be barred from using fine print in contracts that mandates arbitration instead of a group lawsuit in the event of a dispute over products ranging from checking accounts to credit cards. The agency said the clauses prevent consumers who have been wronged from receiving justice and compensation through the courts.

U.S. businesses are expected to oppose the proposal and sue if it becomes final. They say arbitration is more efficient and helps avoid costly litigation that rarely benefits the people filing suit.

“Companies simply insert these clauses into their contracts for consumer financial products or services and literally ‘with the stroke of a pen’ are able to block any group of consumers from filing joint lawsuits known as class actions,” CFPB Director Richard Cordray said in prepared remarks.

“That is so even though class actions are widely recognized to be valid avenues to secure legal relief under federal and state law.”

In class actions, people band together to sue over the same alleged wrongdoing to make the lawsuit more affordable. A 2015 study by the CFPB found individuals rarely sue on their own because it is too expensive and that about 6.8 million consumers receive $220 million in payments from class action settlements each year.

In arbitration, a private individual settles a conflict. Frequently, companies select the arbitrators, the proceedings are confidential and decisions are hard to appeal.

Under the proposal, companies could still use arbitration clauses, but would have to state explicitly that consumers can sign onto class actions. They would also have to give the bureau information on claims filed and awards issued in the arbitrations, as well as correspondence from arbitrators regarding unpaid fees and failure to follow standards of conduct.

Requiring customers to agree to “mandatory arbitration clauses” when they sign up for a product has become nearly universal since a 2011 U.S. Supreme Court decision known as AT&T Mobility vs. Concepcion validated the practice. It has also become a flashpoint for both political parties.

Democratic presidential candidate Hillary Clinton on Thursday supported the proposal, saying “mandatory arbitration clauses buried deep in contracts for credit cards, student loans, and more prevent American consumers from having their day in court when they’ve been harmed.”

U.S. Senator Sherrod Brown, an Ohio Democrat sometimes mentioned as a possible vice presidential candidate in November’s election, pledged to push the CFPB to “finalize the rule as soon as possible.”

The private sector and conservative political leaders quickly criticized the proposal, saying it only helps attorneys who file class actions and reap fees and shares of settlements.

The chairman of the House of Representatives Financial Services Committee, Republican Jeb Hensarling of Texas, called it a “big, wet kiss to trial attorneys” and cast Cordray as a “de facto dictator.”

“This move - which will apply to some of the most common financial contracts including credit cards, checking accounts, and even cell phones - essentially hands over the keys of the CFPB’s luxury office building to the wealthy, powerful, and politically well-connected trial lawyer lobby,” he said.

The U.S. Chamber of Commerce, representing the business sector, said that “in the 50 years since the advent of modern day class action lawsuits, plaintiffs’ lawyers have made millions of dollars in fees from these suits while consumers often receive little benefit.”

The CFPB said the proposal would give consumers “a day in court.” It also aims to create a deterrent effect through the threat of group lawsuits and increased transparency, the agency said.

“Forced arbitration and class action bans force consumers into a biased, secretive, and lawless forum, preventing either a court or an arbitrator from ordering a lawbreaker to repay all of its victims,” Lauren Saunders, associate director of the National Consumer Law Center, said in a statement.