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Posts Tagged ‘consumers’

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.

A Tribute on Laborless Day

Friday, September 11th, 2009

(The following post is part of our Taking Back Labor Day blog series. Many people view Labor Day as just another day off from work, the end of summer, or a fine day for a barbecue. We think that it’s a holiday with a rich history, and an excellent occasion to examine what workers, and workers rights activism, means to this country. Our Taking Back Labor Day posts in September will do that, from a variety of perspectives, and we hope you’ll tune in and join the discussion!)

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This time, grill some burgers, raise a glass of beer and drink a toast to Laborless Day, in honor of the 10% to 20% of the American workforce who cannot find work, or anything meaningful that pays a living wage.

The current state of labor affairs in the United States is this: We’ve just barely survived eight years in which corporations amassed even more political power and societal control than they had before.

The military-industrial complex has continued to provide us with war, the banking industry gave us substandard mortgage derivatives but won’t loan money to people with good credit, and the insurance industry forced us to buy home insurance, car insurance, flood insurance and life insurance, but refused to sell us health insurance. Labor unions are on the run in many states, and the minimum wage will buy you a dry spot under the U.S. 90A bridge.

The Captains of Industry have had their way, more or less, for decades, and never more than now. You’d think they’d be flying high, but instead, on the eve of this Laborless Day, they find themselves in a quandry.

They’ve re-learned the hard way that their stock appreciation, bonuses, vacation mansions and hot cars accrue in proportion to American consumer spending.

Economists such as Michael Mandel may argue otherwise, but American consumer spending accounts for in the neighborhood of 70% of the Gross Domestic Product, which is roughly to say, our economy. (Mandel makes a good argument that the consumer impact is less than that, but doesn’t count consumer wages confiscated as taxes, which are then spent on government programs and, yes, do have an economic impact.)

After taking a financial beating in a variety of ways, directly or indirectly from numerous corporate captains, the American consumer has lost the ability to spend. The big shots still are living high on the fuel that was stuffed into the pipeline before the Last Straw, but soon nothing will be left but fumes.

Thus we find the Captains of Industry, through major voiceboxes such as the Wall Street Journal, playing a dual role. Yes, as Republicans they still have to diss the Democrats’ stimulus spending (while forgetting Bush Jr.’s). But at the same time, because consumer spending is predicated on consumer confidence, they must declare that the glass is half full and in fact the recession, which was never all that bad to begin with, is really pretty much over and we’re all in recovery now.

Sure, guys. Paper me over with charts explaining how, technically, the bell curve has rung while Southeast Asian production rates clearly are leveling off and job losses truly are not gushing out on the ground as fast as they were just a month ago.

Meanwhile, back in the real world, almost every middle-class American who still has a job and is not employed in the medical industry faces the very real prospect of sudden job loss. In Detroit, by one measure, 17.7% of the workforce was out of work by the end of July. In the El Centro, Calif., market, for some reason, the unemployment total hit 30.2%.

Some, especially over at the Journal, will say these figures are overstated, that the Labor Department figures show the average U.S. unemployment rate at the end of August was “only” 9.7%.

I say that’s more than bad enough. But it’s also an example of how figures lie.

The Labor Department also tracks more meaningful numbers, which I believe the media should use to provide a more accurate picture of U.S. employment.

Like this one: “Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force.”

“Marginally attached” workers are those who have run out of benefits, been unemployed for a year or more but are available for a job and want one. The part-time workers referred to really want full-time jobs but can’t find any.

In August of 2008, as the current collapse began, this more accurate average U.S. unemployment rate stood at 10.7%. One year later, it stands at 16.8%. I shudder to think what this rate is in Detroit.

This holiday weekend, be as patriotic as you are on holidays honoring our brave military members who died serving their country. Honor the American working man and woman, salt of the Earth and the blood that keeps our country’s heart beating.

But also honor your fellow Americans, almost one in five now, who want to do their part, secure their families and help spend the country back into recovery with honest work, only there isn’t enough to go around.

About the Author: Bob Dunn is a writer, consultant and web developer based in Richmond, Texas. He can be reached via Bob Dunn’s Brazos RiverBlog.

This article originally appeared in Bob Dunn’s Brazos River Blog on September 5, 2009. Re-printed with permission from the author.

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