Every day, we sign up for programs, install smart phone apps, shop online and check the box that says we’ve read and agreed to the merchant’s terms. Yet, have you read them? And if you don’t check the box, you can’t “buy” the product so what choice is there?
In that fine print though you have given up a right guaranteed by the Constitution, which grants individuals the right to have valid complaints heard.
Jessica Silver-Greenberg and Michael Corkery assert:“Today, it is virtually impossible to apply for a credit card, rent a car, get cable or internet service, or shop online without agreeing to private arbitration.”
And arbitration rulings are final! The arbitrator doesn’t necessarily have to give a reason; they could even be in error. Still, the ruling is final!
In essence, if something goes wrong, if you’ve unwittingly been defrauded, you have waived the right to bring the merchant to court, a right that companies and banks especially have taken advantage of for years to the customers’ detriment.
Most customers will not even bother with the formal arbitration process for small amounts in dispute. As the LA Times notes, “that gives companies carte blanche to cheat and defraud on a wide scale, as long as they don’t take very much from any individual.”
Well the Consumer Financial Protection Bureau (CFPB), which was established by Dodd-Frank, just adopted a rule that could potentially allow for court justice, “for millions of Americans, by prohibiting financial firms from forcing them into arbitration in disputes over their bank and credit card accounts.”
The case that precipitated their action was Wells Fargo’s recent court approval of a $142 million settlement of a class-action lawsuit between the bank and victims of its fake accounts scandal. When the lawsuit was first filed, Wells Fargo attempted to veto the class action, forcing the individual customers into arbitration based upon the arbitration clauses customers had to agree to when they initially opened accounts at the bank.
But public outrage forced the bank to allow the lawsuit to proceed. In response to this type of forced arbitration, the CFPB issued a rule this week banning financial institutions from sending class actions to mandatory individual customer arbitration.
This would allow for customers to band together and take action in class action suits against institutions. Richard Cordray, the director of CFPB stated: “A cherished tenet of our justice system is that no one, no matter how big or how powerful, should escape accountability if they break the law.” The action could cost institutions significant sums.
They won’t take this without a fight.
As you might expect, the action is already under protest by some members of Congress who are making serious attempts to cancel the rule. Taking it a step further, the House has passed a bill (HR-10) that will essentially gut the agency, taking away its most critical regulatory rules and its ability to enforce them.
The rule “should be thoroughly rejected by Congress under the Congressional Review Act,” said Representative Jeb Hensarling, the Texas Republican who has been leading the charge to weaken the agency. “In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives.”
Mr. Hensarling is also threatening contempt proceedings against Mr. Cordray, stating the agency failed to comply with a subpoena related to its work on the arbitration issue.
The Chamber of Commerce echoed Mr. Hensarling’s critique, saying, “The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue.”
I wonder if some of this backlash against the arbitration ruling and gutting of the CFPB has something to do with the potential billions of dollars banks would stand to lose if customers’ valid complaints went to court. Beginning in 2009, big banks had to pay more than $1 billion to settle class-action lawsuits that “accused them of monkeying with checking account policies to maximize the number of overdraft fees they could charge customers.”
Since that time many of the banks involved have established mandatory arbitration policies, thus possibly neutering any future such actions. And indeed many banks have since limited these lawsuits, including American Express, which forced merchants accusing the bank in class action of charging high processing fees to seek arbitration.
Yes, frivolous lawsuits cost everyone. However wouldn’t a better solution be to “adjust the rules for such claims, not to deny people the only effective means they may have to redress their complaints — a right guaranteed by the Constitution,” as suggested in a recent editorial in the LA Times.
Won’t the banks be less likely to engage in bad business practices if they know they may be sued in class actions? And won’t this encourage more careful monitoring of their processes and more sensitivity to employee feedback which may indicate problems (e.g., Wells Fargo)?
We’ve handed the power to rule over our pocketbooks to banks and other financial services companies to possibly cheat and defraud on a wide scale.
Hopefully, the CFPB will prevail.
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Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
