"You May Soon Be Able To Sue Your Bank. Wall Street Heads Set To Explode"

The Consumer Finance Protection Bureau which Elizabeth Warren did more than anyone to foster is proposing a rule in which the PROTECTION part of its name ought to be capitalized.

You may soon be able to sue your bank. Watch Wall Street heads explode

“The last time you signed a contract for a cell phone plan, a bank account, or a credit card, you probably signed away your right to go to court if that company cheated you. That’s because most contracts for financial products contain forced arbitration clauses buried deep in the fine print. These clauses prohibit consumers from protecting themselves in court, and they make it a lot easier for financial institutions to get away with cheating their customers.” —Sen. Elizabeth Warren, October 2015.

In a move The New York Times calls “the biggest that the agency has made since its inception in 2010,” the Consumer Financial Protection Bureau Thursday proposed a rule that would bar mandatory arbitration clauses in contracts with financial firms. Since it requires no congressional approval, the rule quite likely will go into effect after a 90-day public comment period in which opposition from business groups will no doubt be extensive, loud and bullshitty. (If you’d like to comment, you can choose a method here.) Foes of the rule, which could cost firms billions, include the U.S. Chamber of Commerce:

“The proposed rule is a wolf in sheep’s clothing,” the U.S. Chamber of Commerce said in a statement. “Now the agency designed to protect consumers is proposing a rule that will end up hurting them.” 

Yadda, yadda, propaganda.

The widely used arbitration clauses effectively deny consumers their day in court by keeping them from using class-action lawsuits, which are the only truly effective means they have of fighting firms that engage in deceitful and sometimes illegal practices. The CFPB stated Thursday in a release published on its website:

“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”

In a year-long investigation, Jessica Silver-Greenberg and otherTimes reporters undertook a detailed study of arbitration clauses that the financial industry keeps arguing are a boon for consumers. The investigative team found the claims to be bogus. And they confirmed—no surprise—that it’s the person disputing small amounts, say, for late fees and overdraft charges, that gets hurt worst. From 2010 to 2014, the Times found, just 505 consumers blocked from class action suits went to arbitration over disputes of $2,500 or less. Yet tens of millions of Americans have signed financial contracts that include arbitration clauses.

Fourteen months ago, the bureau released its own arbitration study, more than 700 pages worth. It showed that few people file or even consider filing individual actions or going to arbitration. And those who did go to arbitration tended to lose. Businesses won far more and bigger judgments than consumers received. In the 2010-2011 period, judgments in just 78 arbitration claims favored consumers. They received less than $400,000 in total relief. Meanwhile, businesses won judgments of $2.8 million.

On the other hand, beginning in 2009, banks without mandatory arbitration clauses paid out more than $1 billion in class-action judgments, mostly for manipulating bank policies to maximize overdraft charges. Seven of the banks involved in those judgments have now adopted mandatory arbitration. 

According to the CFPB, here are the advantages of the proposed rule:

• A day in court for consumers: The proposed rules would allow groups of consumers to obtain relief when companies skirt the law. Most consumers do not even realize when their rights have been violated. Often the harm may be too small to make it practical for a single consumer to pursue an individual dispute, even when the cumulative harm to all affected consumers is significant. The CFPB study found that only around 2 percent of consumers with credit cards who were surveyed would consult an attorney or otherwise pursue legal action as a means of resolving a small-dollar dispute. With class action lawsuits, consumers have opportunities to obtain relief from the legal system that, in practice, they otherwise would not receive.
• Deterrent effect: The proposed rules would incentivize companies to comply with the law to avoid group lawsuits. Arbitration clauses enable companies to avoid being held accountable for their conduct. When companies know they can be called to account for their misconduct, they are less likely to engage in unlawful practices that can harm consumers. Further, public attention on the practices of one company can affect or influence their business practices and the business practices of other companies more broadly.
• Increased transparency: The proposed rules would make the individual arbitration process more transparent by requiring companies that use arbitration clauses to submit any claims filed and awards issued in arbitration to the CFPB. The Bureau would also collect correspondence from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to adhere to the arbitration forum’s standards of conduct. The collection of these materials would enable the CFPB to better understand and monitor arbitration. It would also provide insight into whether companies are abusing arbitration or whether the process itself is fair.

Arbitration has its place. But it should be an option in such matters, not a requirement, since it is designed specifically to screw consumers who banks and credit card companies know will not take individual legal action over a relatively few disputed dollars. For many consumers, a $30 overcharge may mostly be an annoyance that costs more time and money to challenge individually than they would get in return. For the firms, however, those uncontested charges and fees add up to billions on the bottom line.