Outten & Golden: Empowering Employees in the Workplace

Posts Tagged ‘bureaucracy’

New CFPB Rule – a Poster Child for Regulation

Tuesday, July 25th, 2017

The new CFPB rule is critically important in its own right, but it is also interesting to view the battle over this rule as a microcosm of the fight we so often see between free market devotees and fans of regulation. Bankers, credit card issuers, payday lenders and the Chamber of Commerce have urged for many years that consumers should be free to “choose” to resolve disputes through individual arbitration – supposedly a quicker, cheaper better mode of dispute resolution as compared to litigation and class actions.  In contrast, those who oppose forced arbitration assert that such arbitration is unfair for consumers and bad for society as a whole.  Ultimately this battle between free marketeers and pro-regulation forces turns on principles of economics, psychology, and political philosophy, as I have detailed elsewhere.

While those who oppose regulation urge that financial consumers should be free to choose to resolve future disputes through individual arbitration rather than through class actions, empirical studies and common sense tell us that consumers do not knowingly choose a contract based on the arbitration clause.  We do not focus on such clauses, we do not usually understand them and our human psychology leads us to be overly optimistic that no disputes will arise in any event.  Nor would it make sense for all consumers to spend the time and energy to try to figure out such clauses.

We also cannot count on the miracle of Adam Smith’s invisible hand to ensure that financial service companies act in the best interest of consumers.  The lack of perfect competition, customers’ lack of complete information, the impact of clauses on third parties and the unequal initial distribution of resources all ensure that the market will not miraculously do what is best for customers.

Philosophically, how can one argue with a straight face that clauses imposed unknowingly in small print contracts are supported by principles of freedom or autonomy?  As Professor Hiro Aragaki has explained, perhaps autonomy supports freedom from contracts of adhesion more than freedom of contracts of adhesion.

So, we need regulation. What should the regulation look like? Is forced arbitration the quicker, cheaper, better form of dispute resolution that its advocates suggest? Do class actions help consumers or do they only enrich the lawyers who bring them? The CFPB used extensive empirical investigation to answer these questions.  It found that (1) financial consumers are typically unaware of the arbitration clauses to which they are subjected; (2) only miniscule numbers of financial consumers actually bring claims in arbitration; and (3) financial class actions, e.g. over improper check bouncing charges, have brought billions of dollars of benefits to millions of consumers and also imposed non-monetary sanctions, all helping to deter future illegal conduct.  Thus, CFPB concluded that, at minimum, it should prevent financial companies from using arbitration to insulate themselves from class actions.  It issued the rule to achieve that end.  The new CFPB rule also requires companies to submit additional information to CFPB regarding their arbitration programs so that CFPB can conduct additional analyses and decide whether more/different regulation may be needed.

Hurrah for the CFPB!   Its new rule is supported by psychology, economics, and political philosophy.  Nonetheless, the new rule is under serious threat.  Congress may consider proposals to gut the rule as early as next week, and the Acting Comptroller of the Currency is threatening to void it on the ground that allowing financial consumers to sue in class actions would threaten the soundness of the banking system.

The CFPB says otherwise, and expresses surprise that such a claim is being made at the tail end of a very public three year study.

Let’s now all take what steps we can to preserve this rule against the attacks that are coming in Congress, from elsewhere in the bureaucracy, and in the courts.

The Consumer Financial Protection Bureau (CFPB) just issued a new rule prohibiting financial service providers from using forced arbitration to prevent their customers from suing the company in class actions.  While many of us believe this rule is a “great win for consumers,” others are trying to gut it in Congressin the courts, or through administrative action by the Comptroller of the Currency.

Bringing the Wrong Mindset to Work

Monday, May 10th, 2010

Image: Bob RosnerMindset. What is the context that you bring to work each day? Your personal way of seeing the world that influences your problem solving and decision making at work? I think mindsets are one of the most important, and least talked about, issues in today’s workplace. Why? Because I think most of us go to work each day with the wrong one. Here are the 5 most common mindset “M’s” that I see in today’s workplace along with a few of the problems that are associated with each.

1. MILITARY. Max Weber believed that the most efficient way to get a job done was through a rule-driven, impersonal bureaucracy. His most influential book title tells you everything you need to know about his world view—“The Protestant Work Ethic and the Spirit of Capitalism.” It’s easy to make fun of Weber’s rules. But look around your workplace and you’ll see that the only thing more resilient than a cockroach is a bureaucracy. Ironically, even the US military is encouraging the troops to show more creativity and initiative these days.

2. MOTIVATION. “How to Win Friends and Influence People” is the landmark title from Dale Carnegie that says everything you really need to know about motivational management. Carnegie was a master salesman who created the fundamental techniques of handling people (don’t criticize, condemn or complain, give honest and sincere appreciation and arouse in the other person an eager want). What is pure gold in the hands of a master like Carnegie, unfortunately is distinctly un-motivating in the hands of a novice.

3. MACHINE. This is one of the most popular ways to look at work. With proper fuel and maintenance, well, work will work like a machine. The “father” of the machine mindset at work is Frederick Taylor. For example, he broke down the process to make Ford’s Model T into 7,882 steps. He then determined that of these steps, 715 could be done by men with one arm and 10 by blind men. The only problem is that Taylor’s world really has no place for creativity or intelligence. Oops.

4. MEASUREMENT. Walk into the Toyota building in Tokyo and you’ll see three portraits. The first is of the company’s founder. The second the current chairman. And the third is of an American mathematician, W. Edwards Deming. Lean production, quality and reducing waste were all hallmarks of Deming’s teachings. But my favorite lesson from Deming is number eight of his famous fourteen points. “Drive out fear.” Deming’s measurements can do a remarkable job of improving quality but once again this philosophy is extremely limited when it comes to creating new markets and products.

5. ENTREPRENEURIAL. [Yes, this is not an “M” word. And that is another aspect of “mindsets,” do your box you in and limit your flexibility?] Do you know when the word entrepreneur was first coined? J.B. Say, a French economist, first coined the word in the early 1800’s. Peter Drucker talked about how systemic entrepreneurship is the secret behind many of the most revolutionary innovations in the workplace. The only problem is that most organizations can only maintain an entrepreneurial environment for a relatively short period of time before bureaucracy begins to gum up the works.

Next time I’ll talk about an entirely new mindset that you can bring to work. One that is complex enough to allow you to tackle those really tough challenges at work.

About the Author: Bob Rosner is a best-selling author and award-winning journalist. For free job and work advice, check out the award-winning workplace911.com. Also check out his newly revised best-seller “The Boss’s Survival Guide.” If you have a question for Bob, contact him via bob@workplace911.com.

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