Outten & Golden: Empowering Employees in the Workplace

Posts Tagged ‘CFPB’

Congress Just Killed Your Right to a Day in Court

Monday, October 30th, 2017

Last week, 50 Senators joined Vice President Mike Pence to kill one of the most important advances in consumer rights in years.

By casting the tie-breaking vote to kill the Consumer Financial Protection Bureau’s arbitration rule – which allowed consumers to band together to sue banks, financial institutions and credit card companies – Pence showed just how much power Wall Street has amassed on Capitol Hill and on Pennsylvania Avenue. It also unmasked the alarmingly cozy relationship between GOP leaders and the bank executives who defrauded millions of consumers and exposed their most important information to Equifax hackers.

As I told one reporter , “This was the Wells Fargo Immunity Act.”

Public Justice was proud to be a leading voice in the effort to defend the CFPB rule and help consumers fight back against the big banks that defraud their own customers. But make no mistake:  This vote was a big setback for consumer protection, but it did not kill the resolve of those of us who will continue to fight alongside the CFPB in order to give Americans their day in court.

Now that consumers have learned what’s at stake, there’s going to be more pressure from constituents for lawmakers to stop the kinds of behavior we’ve seen from Wells Fargo and Equifax, among others. This vote, though heartbreaking for those of us who believe in protecting the little guy, may well turn out to be a huge catalyst for future change.

With your help, we will keep fighting to keep the courthouse doors open.

This blog was originally published at Public Justice on October 30, 2017. Reprinted with permission. 

About the Author: Paul Bland has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads Public Justice’s legal and foundation staff, guiding the organization’s litigation docket and other advocacy.

Forced Arbitration Protects Sexual Predators and Corporate Wrongdoing

Tuesday, October 24th, 2017

Fox News.  Sterling Jewelers.  Wells Fargo. 

What do they all have in common?  For years, they successfully kept corporate wrongdoing secret, through forced arbitration.

Buried in the fine print of employment contracts and consumer agreements, forced arbitration clauses prohibit you from going to court to enforce your rights.  Instead, employees who experience harassment and discrimination, or consumers who are the victims of financial fraud or illegal fees, are sent to a private arbitration forum.  Frequently designed, chosen, and paid for by the employer or corporation, in arbitration everything is conducted in secret. People who suffered the same abuses often can’t join together to show how rampant a problem is and confront a powerful adversary—and people are less likely to come forward at all, because they have no idea they aren’t alone.

When Gretchen Carlson sought her day in court over sexual harassment allegations against Roger Ailes, her former boss at Fox News, Mr. Ailes’s lawyers had a quick response: send the case to forced arbitration.  After she filed suit, he also invoked a clause that reportedly required absolute secrecy: “all filings, evidence and testimony connected with arbitration, and all relevant allegations and events leading up to the arbitration, shall be held in strict confidence.” It was only because she resisted that clause through a creative legal theory that her allegations were made public—unleashing a tsunami of claims of sexual harassment by Ailes and others at Fox News.

Hundreds and maybe thousands of former employees of Sterling Jewelers, the multibillion-dollar conglomerate behind Jared the Galleria of Jewelry and Kay Jewelers, known for advertising slogans such as “Every kiss begins with Kay,” were allegedly groped, demeaned, and urged to sexually cater to their bosses to stay employed.  The evidence of apparent rampant sexual assault was kept secret for years from other survivors and the general public through gag orders imposed in forced arbitration.

The same thing happened at American Apparel, where employees and models were forced to arbitrate sexual harassment claims and keep the details secret, and the proceedings were reportedly a sham.

We don’t yet know if Hollywood producer Harvey Weinstein used forced arbitration to suppress allegations of his decades-long campaign of sexually harassing, abusing, and assaulting young assistants, temps, employees and executives at the Weinstein Company and Miramax.  But the clauses may well have played a role, and his nondisclosure agreements and secret one-by-one settlements worked to the same effect.

And forced arbitration clauses do not only hide wrongdoing in sexual harassment cases.  Corporations also use forced arbitration to isolate victims and cover up massive, widespread wrongdoing in the financial sector.

For example, forced arbitration clauses found in legitimate customer accounts let Wells Fargo block lawsuits related to the 3.5 million sham accounts it opened; as a result it kept its massive scandal secret for years, and then lied to Congress about it.  People began trying to sue Wells Fargo in 2013, but cases were pushed out of our public courts into secret arbitrations, and Wells Fargo continued creating fake accounts.

KeyBank, like Wells Fargo, has also used forced arbitration to keep disputes secret and block relief for people charged overdraft fees when their accounts weren’t overdrawn.  A court recently ruled “unconscionable” KeyBank’s provision requiring a customer to “keep confidential any decision of an arbitrator.”  But the court allowed KeyBank to force the plaintiff to arbitrate his case individually, despite the fact that thousands or millions of KeyBank customers were subject to the same abuses. These customers were not permitted to come together to challenge these abuses as a group in court, because of forced arbitration.

By imposing secrecy and isolating victims, forced arbitration shields corporate wrongdoing and leaves it more difficult for those harmed to hold the wrongdoers accountable.  That’s why the Consumer Financial Protection Bureau issued a rule earlier this year prohibiting banks, payday lenders and other financial companies from using forced arbitration to cover up widespread frauds, scams and abuses.  This is a first step in the right direction of restoring Americans’ rights to challenge predatory practices.  But some in Congress have threatened to block this important protection. 

Earlier this year, Congress and President Trump overturned rules that prohibited employers with federal contracts from forcing employees to arbitrate sexual harassment or sexual assault claims, or claims alleging discrimination on the basis of sex, race, or religion.  In so doing, they took power away from women facing sexual harassment and returned it to those trying desperately to keep that harassment under wraps.

We cannot tolerate another blow against Americans seeking to hold the wealthy and powerful accountable.  The CFPB’s rule must be permitted to go forward. 

This blog was originally published at Public Citizen Litigation Group’s Consumer Law & Policy Blog on October 23, 2017. Reprinted with permission. 

About the Author: Emily Martin is General Counsel and Vice President for Workplace Justice at the National Women’s Law Center. She oversees the Center’s advocacy, policy, and education efforts to ensure fair treatment and equal opportunity for women at work and to achieve the workplace standards that allow all women to achieve and succeed, with a particular focus on the obstacles that confront women in low-wage jobs and women of color.

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.

On the CFPB’s Birthday, Stand Against Sharks

Friday, July 21st, 2017

July 21 marks the six-year anniversary of the Consumer Financial Protection Bureau, which was created in the wake of the Wall Street crime wave that led to the financial crisis of 2008.

The CFPB was first conceived by law professor Elizabeth Warren, now Senator Warren from Massachusetts, as an agency that could protect the American people from being mistreated, defrauded, and otherwise ripped off by powerful bankers who ran institutions that engaged in massive criminal behavior and yet never spent a day in jail.

It is a day to celebrate, and a day to fight.

Why Celebrate?

Why celebrate? Because, despite a number of attempts to tie its hands, the CFPB has been enormously successful. It has provided almost $12 billion in relief to 29 million victims of bank malfeasance.

It has provided nearly 50 million borrowers with new protections from dirty mortgage tricks – including surprise fees and mistreatment for those who fall behind in their payments.

The CFPB has rewritten credit card rules, saving customers more than $16 billion in hidden fees. It has helped stay-at-home spouses and Americans serving in the armed forces.

Why fight? Because Republicans – helped at times by some venal Democrats – are doing their best to gut the CFPB and leave consumers defenseless against the predators on Wall Street.

Inside the Shark Tank

Does the word “predator” seem too harsh a word for bankers? William Dudley, then President of the Federal Reserve Bank of New York, said in 2013 that Wall Street’s big banks suffered from “deep-seated cultural and ethical failures” and “the apparent lack of respect for law, regulation and the public trust.”

2015 survey of banker ethics found an extraordinary tolerance for corrupt behavior and “a marked decline in ethics” since the study was first conducted in 2012. More than one-third of bankers earning $500,000 or more per year said they “have witnessed or have first hand knowledge of wrongdoing in the workplace.”

One in four said they would break the law themselves if they could make $10 million or more by doing it.

Wall Street’s offenses include “price fixing, bid rigging, market manipulation, money laundering, document forgery, lying to investors, sanctions-evading, and tax dodging.”

At last count, banks had paid more than $200 billion in fines and settlements to settle fraud charges. Bank of America had paid more than $77 billion.

Checkered Citi and Chase

Citigroup, the megabank created with bipartisan cooperation from Republican Senator Phil Gramm and Clinton Treasury Secretary Robert Rubin (who later became the bank’s chief executive), had paid nearly $20 billion.

JPMorgan Chase CEO Jamie Dimon considers himself a worthy commentator on economic issues. But, under his leadership, his bank paid nearly $30 billion for crimes over a four-year period.

These include, according to an investors report, violations of the Bank Secrecy Act; money laundering for drug cartels; violations of sanction orders against Cuba, Iran, Sudan, and Liberia; violations of the Servicemembers Civil Relief Act; the fraudulent sale of unregistered securities and derivatives; bribery of state officials; and, obstruction of justice, including refusal to release documents in the Bernie Madoff case.

Voters Aren’t Fooled

new poll finds that “More than nine in ten Americans (91%) believe it is important to regulate financial services, including 71% who believe it is very important. Strong bipartisan majorities say financial regulation is very important.” That includes Democrats (81%), independent voters (75%), and Republicans (58%).

They’re right. When Trump budget director Mick Mulvaney boasts that the fiction he calls “MAGAnomics” will lead to economic growth of more than 3 percent per year, he doesn’t explain that we routinely had that level of growth until unregulated bank fraud led to the financial crisis of 2008.

If we let the Republicans deregulate Wall Street again, it will set the stage for another crisis.

Republicans Are a Shark’s Best Friend

These bankers may break the law – and be unpopular with voters – but they’ve still got friends on Capitol Hill. Right now Republicans like Sen. Tom Cotten are working to undermine the CFPB’s new arbitration rule, which is set to take effect in September.

This rule ends banks’ ability to force customers into arbitration, a process that’s skewed in Wall Street’s favor. The CFPB rule would make it possible for customers to once again file class-action suits. Given Wall Street’s deep pockets for attorney’s fees, class-action suits are one of the few tools customers have for defending themselves in court.

House Republicans also passed the so-called “Financial Choice Act” – “Financial Carnage Act” might be a better name – a bill that would gut the CFPB and strip away other consumer protections.

When the Republicans fight the CFPB, they’re standing with the student loan predators at Navient. That’s the loan servicing company the CFPB sued earlier this year for cheating borrowers of their rights. That means they’re standing against the 44 million Americans who owe more than $1.4 trillion in student debt.

When the Republicans fight the CFPB, they’re standing with the bankers who defrauded mortgage holders and fraudulently foreclosed on American families. That means they’re standing against the millions of Americans who currently hold more than $14 trillion in mortgage debt.

When the Republicans fight the CFPB, they’re standing with the payday lenders who have trapped hundreds of thousands of lower-income Americans into a debt trap that can lead to annualized interest rates of 300 percent. That means they’re standing against the estimated 12 million Americans who pay an average of $520 per year in interest on eight $375 loans. These borrowers would be protected by the CFPB’s proposed payday lending rules.

People’s Action is repeating its annual “shark week” tradition, which draws attention to  this year, with anti-payday lender actions timed to coincide with the Discovery Channel’s “shark week” programming.

The CFPB has provided an extraordinary amount of help to millions of Americans in just six years. Now it needs our help.

This blog was originally published at OurFuture.org on July 21, 2017. Reprinted with permission.

About the Author: Richard (RJ) Eskow is a writer and radio journalist who has worked in health insurance and economics, occupational health, risk management, finance, and IT. He is also a former musician.

Get Back Your Right To Take Your Bank To Court

Thursday, July 13th, 2017

Wall Street, the U.S. Chamber of Commerce and right-wing Republicans are ganging up again this week against consumers who want to hold financial institutions that rip them off accountable.

The target this time is a rule issued this week by the Consumer Financial Protection Bureau that is designed to restore the ability bank and credit card customers, as individuals or as a group, to take a financial dispute to court.

“Our new rule will restore the ability of groups of people to file or join group lawsuits. In some cases, not only will companies have to provide relief, they will also have to change their behavior moving forward,” said a statement issued by the agency. “People who would otherwise have to go it alone or give up, will be able to join with others to pursue justice and some remedy for their harm.”

However, unsurprisingly, it took less than a day for the guardians of Wall Street profiteering to attack the rule. They are the same people – like Sen. Tom Cotton, R-Ark., in the Senate and Rep. Jeb Hensarling, R-Texas, in the House – who are working to either get rid of the CFPB entirely or render it toothless.

That’s why People’s Action is launching a petition asking Congress to keep the CFPB arbitration rule and protect the ability of ordinary people to go to court against corporate wrongdoers.

Cotton announced Tuesday that he would be introducing legislation to undo the rule under the execrable Congressional Review Act, the same tool Republicans have been using since President Trump took office to undo a host of Obama-era regulations.

Quoted in The Washington Examiner, “Cotton accused the bureau of “going rogue again” and said that the rule “ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests.”

Reuters reported that “the U.S. Chamber of Commerce is contemplating a legal challenge and Trump administration officials are also looking at ways to kill the rule.”

Many customers don’t realize that right now, if they believe their bank or credit card customer has ripped them off or otherwise harmed them, they can’t take the matter to court.

That’s because buried in the fine print of more than 50 percent of the nation’s credit card account agreements and more than 40 percent of the bank account agreements, accoording to a 2015 Consumer Financial Protection Bureau report, there’s language that says if you want to challenge wrong or unfair charges to your account, you are required to go into a binding arbitration process, rather than take the dispute to a court.

The arbitration process is rigged to favor the financial institution. When The New York Times looked at this process in 2015, it found that few customers used the arbitration process, and when they did, consumers lost roughly two-thirds of the time. The process is also explicitly designed to keep consumers with similar complaints from banding together to confront patterns of bad behavior.

Among other things, arbitration clauses shielded Wells Fargo from a class action lawsuit when its employees were creating thousands of bogus consumer accounts in order to meet sales quotas.

It’s only fair: If you steal from a bank, you’ll be brought before a judge. The same should happen if a bank steals from you – and thousands of others. That’s what the CFPB rule says.

The use of the Congressional Review Act is particularly pernicious because ff these Republicans succeed this won’t be a temporary setback. This fundamentally unfair and undemocratic practice that keeps Wall Street from being held legally accountable for its actions would be permanently locked in, because the act not only invalidates the rule but prohibits an agency from writing a similar rule in the future.

Sign this petition so Congress hears you loud and clear: Keep the CFPB arbitration rule and protect our right to challenge corporate wrongdoers in court.

Republican leaders in Congress are hell-bent on neutering the CFPB or eliminating it altogether, precisely because it takes actions like this to even the playing field for consumers going up against the financial giants.

This blog was originally published at OurFuture.org on July 13, 2017. Reprinted with permission.

About the Author: Isaiah Poole is communications director of People’s Action, and has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

The Time Is Now to Stand Up for the CFPB

Tuesday, May 23rd, 2017

Mark Feuer, the Los Angeles City Attorney who helped hold Wells Fargo accountable for creating millions of fake accounts without customers’ knowledge, now warns against efforts by the Trump administration and Congress to dismantle the Consumer Financial Protection Bureau.

“I’m appalled at the spectacle of the House attempting to dismantle or at least severely diminish the CFPB,” Feuer told CNNMoney in a recent interview. He was referring to a bill disingenuously called the CHOICE Act, which would neuter the now-independent CFPB so that it no longer serves as a watchdog against the predatory practices of financial institutions.

People’s Action is asking for signatures on a petition calling on Congress to vote “no” on the CHOICE Act, which in expected to come up for a vote in the coming weeks.

Feuer explained in the interview that the CFPB played a crucial role in investigating reports that Wells Fargo employees were fabricating accounts under pressure to meet sales quotas. Those fake accounts, in turn, showed up in financial reports that helped Wells Fargo boost its stock price and, as the stock price rose, executive earnings.

“It’s true we brought the case in the first place” in response to a 2013 Los Angeles Times exposé, Feuer said, “but our collaboration with the CFPB enabled there to be nationwide relief for Wells customers.”

That included $5 million in refunds to consumers who were assessed fees on the fake accounts and changes in sales practices at the bank. The bank also had to pay $185 million in fines, and did away with the sales quotas that led to the creation of the fake accounts.

You would think that a House of Representatives that is answerable to consumers vulnerable to what Sen. Elizabeth Warren calls the “tricks and traps” big banks, predatory lenders, and debt collectors use to take billions of dollars out of their pockets would consider the CFPB to be a hero.

But that House of Representatives does not exist. The majority of the House is instead answerable to the very tricksters who want free rein to game the system and line their pockets. Republicans love the campaign donations they get from Wall Street bankers, payday lenders, and hedge fund managers. They are literally itching to destroy the CFPB and let Wall Street go wild.

After the big banks crashed the economy in 2008, people took action and won reforms to rein in Wall Street abuses. A big part of that was establishing the CFPB, and structuring it so that it isn’t a punching bag for a Congress and White House drunk on big-bank financial contributions.

The CFPB is the first federal financial watchdog whose entire job is making sure Wall Street can’t get away with the tricks and traps that bleed millions out of our pockets. The Bureau has recovered $12 billion dollars in ill-gotten gains for over 27 million people ripped off by the predatory financial industry.

It is no wonder that gutting the CFPB has been a top priority of the Republican Congress from the beginning. And with all of the scandal now consuming Washington, it would be very easy for Congress to get away with this – unless we “stay woke.”

That’s why we have to get loud about what Congress is doing here.
We’ve derailed Wall Street’s agenda before and, if we stand together, we can stop them again. But that means we need to stop the CHOICE Act dead in its tracks.

Tell Congress: You work for us, not Wall Street. We need our government to do more to rein in payday lenders and Wall Street bankers, not give them a free pass to crash the economy again. Say no to the CHOICE Act. Say yes to an independent CFPB.

This blog originally appeared at OurFuture.org on May 22, 2017. Reprinted with permission.

About the Author: Isaiah J. Poole has been the editor of OurFuture.org since 2007. Previously he worked for 25 years in mainstream media, most recently at Congressional Quarterly, where he covered congressional leadership and tracked major bills through Congress. Most of his journalism experience has been in Washington as both a reporter and an editor on topics ranging from presidential politics to pop culture. His work has put him at the front lines of ideological battles between progressives and conservatives. He also served as a founding member of the Washington Association of Black Journalists and the National Lesbian and Gay Journalists Association.

The CFPB Just Took a Huge Bite Out of Predatory Lending

Thursday, May 5th, 2016

paulblandBanks and payday lenders have had a good deal going for a while: They could break the law, trick their customers in illegal ways, and not have to face any consumer lawsuits. Armed by some pretty bad 5-4 Supreme Court decisions, they could hide behind Forced Arbitration clauses (fine print contracts that say consumers can’t go to court even when a bank acts illegally), even when it was clear that the arbitration clauses made it impossible for a consumer to protect their rights.

But the free ride is coming to an end. After an extensive study, that proved beyond any doubt how unfair these fine print clauses have been for consumers, the CFPB is taking a strong step to reign in these abusive practices. In a new rule, the CFPB says banks can no longer use forced arbitration clauses to ban consumers from joining together in class action lawsuits. That means banks can no longer just wipe away the most effective means consumers often have for fighting illegal behavior.

This is a common sense rule that will go a long way in combating some of the financial industry’s worst practices.

In recent years, for example, if a bank systematically cheated 10,000 consumers in the same way, the bank could use its arbitration clause to stop those customers from going to court together. Each individual had to figure out the scam, figure out what their rights were and then spend time and money fighting the bank and its expensive lawyers. Everyone was essentially on their own. Under most arbitration clauses, one or two customers (at most) would have the means and ability to fight all the way through the arbitration system to get their money back.

In contrast, a class action could offer all 10,000 people a fair shot at justice.

Exempting the financial industry from the normal legal system has had far-reaching – and terrible – consequences. Predatory lending and dishonest practices have pushed millions of people right into desperation. Far too many Americans have been tricked into taking out loans that were far more expensive than they realized.

But help is finally on the way. The free ride is ending.

When it passed the Dodd-Frank Act, Congress required the CFPB to study the use of forced arbitration clauses and take action if those clauses undermined the public interest. So the CFPB undertook a huge, data driven empirical study, which itreleased in March of 2015. The study found that, when consumers could go to court as part of a class action, they recovered billions of dollars in relief. Banks had to refund over charges, erase illegal or inflated debts, and correct inaccurate credit reports.

When consumers were subject to forced arbitration, though, nearly all of those wins disappeared. Almost no consumers actually fought their way through the complex and biased corporate arbitration system. They just gave up. Predatory lenders generally kept whatever money they’d taken, and could operate in a Wild West manner, unless a government agency intervened on behalf of the helpless consumer.

How did arbitration get to be so unfair? In the past, many state laws were clear that if an arbitration clause that banned class actions would undermine a consumer protection law, then a court should strike it down. But in a pair of 5-4 decisions, Justice Scalia wrote opinions that swept all that law away. As a result, corporations could write fine print contracts that would override actual laws. These decisions – one in 2011 and one in 2013 – were unmitigated disasters for consumers and they transformed the Federal Arbitration Act – in place since 1925 – into a Federal Predatory Lender Immunity Act.

But today, things are changing. The CFPB is living up to its name — the Bureau really is protecting consumers. CFPB Director Rich Cordray is probably the most effective agency head in the federal government. He is not afraid to stand up to huge and politically powerful corporations on behalf of the American people. He’s worked hard to ensure the agency lives up to the vision that Elizabeth Warren had when she was advocating for its creation. It’s no wonder why politicians who get huge campaign contributions from large banks hate the agency so much. Many House Republicans attack the CFPB almost as often as they try to repeal the Affordable Care Act.

Today’s action is probably the biggest step forward for consumers since Dodd-Frank itself. It’s a huge step forward in the fight for common-sense protections. It’s a new rule that says the financial sector doesn’t get to re-write – or break – the rules anymore.

This blog originally appeared in Huffington Post on May 5, 2016. Reprinted with permission.

Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. Follow him on Twitter: .

Save the Seventh

Friday, March 13th, 2015

Susan HarleyThe Seventh Amendment to the United States Constitution states, “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved …”

Even though we are all granted the right to a trial by jury in the U.S. Constitution, Big Banks and corporations regularly use fine print in contracts to trick consumers out of their right to a day in court. Forced arbitration means that if consumers are ripped off or otherwise harmed, they must use private arbitration proceedings to air their grievances.

If you’re already angry about forced arbitration and you want to do something to get these predatory terms out of financial products, skip to the end of this post for ways to get involved.

There’s plenty to be mad about. These expensive arbitration “tribunals” have no judge or jury. They are overseen by paid arbitration providers who are selected by the companies. Arbitration firms have a very good reason to guarantee repeat business for themselves by finding in favor of the corporations over the consumers. The findings of arbitration decisions are not public and the appeals process is very limited. Most likely, you will also be required to go to arbitration in another state!

If consumers were interested in choosing arbitration, they would enter into the decision after some harm has come to them. It would need to be an informed decision where they did so with a full understanding of the consequences of their choice to not go to court.

But that’s not how we’re all roped into signing (or even clicking) away our rights. It has been proven that consumers rarely understand that their contracts contain arbitration clauses and have little idea of the repercussions of having their complaints heard in a non-court venue.

And, even if you understood they were there and knew it meant you were losing your right to go to court, it’s not like your average adult can simply opt out of getting a checking account, taking out that student loan, or financing that car.

What about if those very same companies with arbitration clauses were systematically ripping off you and your fellow consumers – but only in small dollar amounts? The only way it makes sense for consumers to bring those cases is through class actions where those who have been harmed can band together to make a complaint about a company’s action. Makes sense, right? Except most arbitration clauses contain class action bans, which were unfortunately upheld by the U.S. Supreme Court in 2011. Now Big Banks basically have free rein to steal a few dollars here and there from all of their customers without worry of being held accountable.

Congress saw the unfairness of forced arbitration clauses and prohibited them in certain industries and in housing-lending contracts via the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Dodd-Frank tasked the Consumer Financial Protection Bureau (CFPB) — the brainchild of Elizabeth Warren — that was created by the same legislation with studying arbitration in all consumer financial contracts and determining whether consumers would be better served by prohibiting the practice.

The CFPB’s study is finally complete. It shows that consumers have little idea about arbitration clauses and how the fine print strips them of their constitutional right to their day in court. In fact, three out of four consumers surveyed as part of the study did not know whether they had an arbitration clause in their credit card agreements. And, of those who did have arbitration clauses, only seven percent understood that meant they had given up their right to their day in court.

Now it’s time for the public to get involved. Every person who’s even been steaming mad at Wall Street’s sticking it to the little guy and thinking they can weasel out of being held accountable needs to get involved.

Urge the CFPB to stand up to Big Banks and do the right thing. It’s certain that the U.S. Chamber of Commerce and its corporate cronies will do everything it can to keep unfair forced arbitration in consumer financial products, so we need as many people as possible to join this fight. There’s a whole toolbox of tactics we’d love to get you involved with, and it only depends on how much time you have to invest in protecting consumers.

Only have a second or two to take an online action? Easy!

What about a minute to share this social media meme? Great! While you’re at it, Tweet with the hashtags #CFPB and #ForcedArbitration.

If you have a lot to say on the subject and want to get your community fired up too, write a letter to the editor. We have ideas on what to say! There are even more ways to get involved. If you want to learn more, email: action@citizen.org.

You could be part of scoring a major win for our country by reclaiming the Seventh Amendment. Americans, take back your day in court!

About the Author: Susan Harley is the deputy director of Public Citizen’s Congress Watch division.

CFPB Hearing: Data on One Side, Empty Rhetoric on the Other

Wednesday, March 11th, 2015

GabeHopkinsLarge In today’s era of Big Data, analytics, and sabermetrics, the cheeky motto “in God we  trust, all others must bring data” has never seemed more relevant. Well, in the arena of  mandatory arbitration provisions in consumer contracts the data is in, and the verdict is  clear: mandatory arbitration is unfair to consumers and harmful to the public interest.

Yesterday, the Consumer Financial Protection Bureau officially released its long-  awaited report on the use of mandatory arbitration clauses in consumer financial  services contracts. At a field hearing in Newark, N.J., CFPB Director Richard Cordray  discussed the report’s essential findings, noting that it was “the most comprehensive empirical study of consumer financial arbitration ever conducted.”

I’ll briefly outline the results, but what was really interesting – and what I’ll discuss below – is the discussion among panelists at the hearing Tuesday.

The 768-page report, three years in the making, was mandated by Congress in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. It analyzed six different consumer financial markets to compare the relative value of arbitral forums and courts for resolving disputes between customers and service providers. The evidence led to several key conclusions:

  • Mandatory arbitration clauses affect tens of millions of Americans. In both the credit card and checking account sectors, half of all accounts were covered by such provisions. The CFPB estimates that 80 million credit card holders are subject to mandatory arbitration.
  • Consumers don’t know they’ve signed away their rights. In a survey conducted for the report, 75% of consumers did not know whether they were subject to mandatory arbitration clauses. Of the 25% who thought they did know fully half were wrong about the true nature of the contracts they had signed. The survey also revealed that only a small fraction of consumers actually understand what mandatory arbitration and class action bans really mean for their rights.
  • Consumers rarely act on an individual basis. Over a three-year period, consumers filed only 1,800 claims in arbitration and 3,500 individual claims in federal court. Evidence from small-claims courts showed that individuals rarely turn to that forum for redress, and that most activity in those courts was by companies filing debt-collection suits against consumers.
  • Consumer class actions work. Over a five-year period 420 class action settlements in federal court netted $2.7 billion in cash, fees, and other relief. Contrary to the familiar protests of industry advocates, only 18% of this money went to plaintiffs’ lawyers, meaning $2.2 billion accrued to the benefit of affected consumers, with approximately half paid directly to consumers in cash payouts. These settlements benefitted at least 34 million consumers across America, not to mention all those protected by the settlements’ deterrent value.
  • Companies use arbitration clauses to kill class actions. Companies rarely invoke arbitration clauses to move individual suits out of court. In contrast, such provisions are raised in nearly two-thirds of class actions, and almost all arbitration clauses prohibit class treatment in the arbitral forum.
  • Arbitration does not make financial services cheaper for consumers. There is no evidence for the claim that arbitration clauses make the cost of doing business cheaper for companies who pass those savings onto consumers. Indeed, after four large credit card issuers removed arbitration clauses from their form contracts under an antitrust settlement, they did not significantly increase costs or reduce access to credit compared to other unaffected companies.

At the hearing in Newark, Director Cordray’s overview of the report’s findings was followed by a panel discussion between advocates for the financial industry and consumer protection advocates, including Public Justice Executive Director Paul Bland.

Given the reams of empirical data contained in the report, the industry-side panelists had little ground to stand on. Their responses consisted largely of nit-picking about the report’s methodology and doubling-down on their belief that arbitration is cheaper, faster, and fairer for consumers. For example, Ballard Spahr attorney Alan Kaplinsky  cited “studies” and his own “personal experience” representing financial institutions to back up these claims. , but did not cite any specific study by name. . He protested that it’s too early to judge how consumers fare in arbitration compared to court because arbitration is “in its infancy,” ignoring the fact that the report analyzed three years’ worth of data from the nation’s largest arbitration provider.  He also raised the familiar bugbear of the predatory plaintiffs’ bar, which reaps untold profits from “frivolous” lawsuits without any real benefit for their clients. His most intriguing comment, if only for its irony, was that his clients in the financial sector are regulated well enough by the CFPB and other federal and state agencies. Leave enforcement to government actors, he argued, they are far better at protecting consumers than the private sector.

Probably the most interesting comments from the industry side of the aisle came from Louis Vetere, president and CEO of a New Jersey credit union. Though he also did not grapple directly with the report, he agreed with his ideological colleagues that arbitration was good for consumers. However, he also repeatedly clarified that his company did not mandate arbitration in its contracts, nor did it think doing so was proper. Rather, he preferred to offer arbitration as an option when disputes with depositors arose, ultimately accepting whichever forum the depositor felt most comfortable with.

The panel’s consumer advocates fired back on several fronts, refuting both the specific arguments made by the industry advocates, and pointing out the many systemic problems caused by mandatory arbitration. Jane Santoni, a consumer lawyer in Maryland, said that arbitration was never a better option for her clients. More troubling to her was the fact that she has had to turn away the majority of prospective clients who have meritorious claims because as individual cases they are simply untenable for her to take. From her perspective mandatory arbitration has an “astronomical chilling effect” on the civil justice system.

Myriam Gilles, professor at Cardozo School of Law, noted that deciding consumer law cases in the “hermetically sealed” forum of private arbitration rather than in public court proceedings undermines the common law system in which future decisions build upon past precedents. She also pointed out that companies put mandatory arbitration clauses in their contracts because it’s in their interests and is a matter of “common sense” from their perspective: as the report clearly bears out, arbitration is not about dispute resolution. It’s about avoiding liability.

Public Justice’s Paul Bland drove this point home in his remarks, noting that the innocent-sounding claim that arbitration is just about moving disputes to a simpler, easier forum is a “fairy tale.” He noted that mandatory arbitration prevented consumers from protecting themselves, particularly as marginal financial actors such as payday lenders move their practices online, burying arbitration agreements in tiny-text terms and conditions on obscure webpages, all to avoid answering to consumers and government overseers when they violate consumer protection statutes. Mandatory arbitration does little more, he argued, than permit companies to break the law with impunity by taking away people’s basic constitutional and statutory rights via mouse print contracts.

The hearing closed with comments from the assembled audience. Dozens of consumer advocates stood up and added further arguments against the use of mandatory arbitration. The points raised were remarkably varied, ranging from the practical – poor consumers can’t even afford the AAA’s $200 filing fee – to the theoretical – pre-dispute arbitration agreements violate consumers’ First Amendment right to petition for redress in a government court. One common refrain in the public comments, made in response to industry panelists’ claims that consumers enjoy the simplicity and informality of arbitration, is that if arbitration is such a good deal for consumers, it should be offered as a choice rather than being forced upon them as a condition of signing up for a credit card, cell phone or car loan.

Now that the data is in, the CFPB will soon announce what, if any, action it should take to regulate the use of mandatory arbitration provisions in consumer financial services contracts. Given the content of the report, the wealth of arguments supporting its conclusions, and the empirically bankrupt arguments from the other side, it is hard to imagine that the Bureau won’t come down hard on these clauses, perhaps even banning them outright. We here at Public Justice certainly hope that it does.

This post originally appeared at http://publicjustice.net/content/cfpb-hearing-data-one-side-empty-rhetoric-other. Reprinted with permission.

About the Author: Gabriel Hopkins joined the Public Justice DC Office in September 2014 as the Thornton-Robb Attorney. Before joining Public Justice he spent a year clerking on the New York State Court of Appeals for the Honorable Susan P. Read.  Gabriel attended New York University Law School and received his J.D. in 2013. While at NYU he worked with attorneys from the New York Civil Liberties Union to sue the New York Department of Corrections over its unconstitutional use of solitary confinement to discipline prisoners, securing significant relief from this practice for minors and the mentally ill in the prison system. He also summered at the New York Attorney General’s Civil Rights Bureau, and the Los Angeles civil rights firm Schonbrun DeSimone Seplow Harris & Hoffman, where he helped partner Paul Hoffman bring the landmark international human rights case Kiobel v Royal Dutch Petroleum to the US Supreme Court.

 

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