Banksters can't explain why, if arbitration is so good for consumers, banks force it into all contracts up front

Nothing prevents banks from giving consumers the choice to arbitrate once a dispute arises

Nicklaus: Agency wants to save consumers from the perils of fine print
By David Nicklaus | St. Louis Post-Dispatch
 
Most of us don’t read the fine print that comes in financial contracts, and the banks know it.
 
The Consumer Financial Protection Board, fortunately, wants to restore a fundamental right that many of us have unknowingly signed away. The agency wants to make sure that, if a financial institution engages in systematic wrongdoing, consumers can have their day in court.
 
A proposed CFPB rule would modify mandatory arbitration clauses that have become common in all sorts of consumer contracts, from opening a checking account to taking out a payday loan. Under the proposal, financial institutions could still require that individual disputes be handled by a private arbitrator, but they could no longer prohibit class-action suits.
 
“This is an incredibly significant step,” says Rachel Weintraub, general counsel at the Consumer Federation of America. “Consumers need redress when there’s a problem.”
 
Bankers, obviously, don’t like the proposal. Rob Nichols, president of the American Bankers Association, issued a statement saying consumers “will get less and pay more” as lenders are hit with a flood of class-action suits.
 
His prediction implies that banks will jack up the cost of credit, but that’s not what has happened in the past.
 
In 2009 and 2010, four large banks dropped their mandatory arbitration clauses as part of an antitrust settlement. The CFPB couldn’t find any evidence that they increased fees or made less credit available.
 
It’s true that arbitration is less costly than a court case, but a class action is, practically speaking, the only way to find justice for people like Gideon Homa, a New Jersey man who noticed a decade ago that his American Express rebate card wasn’t paying back as much cash as he had expected.
 
Homa, who estimated his losses at $354, learned that the arbitration filing fee could be as high as $450. An attorney filed a class-action suit and got an appellate court’s approval to go ahead. That approval was rescinded, however, after the U.S. Supreme Court upheld mandatory arbitration in another case in 2011.
 
In a report last year, the CFPB found that arbitration works overwhelmingly in financial institutions’ favor. It studied cases from 2010 and 2011 in which consumers won a total of $400,000. Companies won $2.8 million.
 
Arbitration is, then, an effective way for lenders to collect disputed debts. It’s not a very effective way for consumers to resolve small problems.
 
Opening the door to class-action suits “restores a situation in which a business can’t get away with engaging in unlawful practices that cost each consumer $5 or $30,” Washington University Law Professor Michael Greenfield says. “This is a vehicle for holding them accountable.”
 
F. Paul Bland Jr., executive director of Washington-based advocacy group Public Justice, expects a flurry of claims against payday lenders, some of which operate online and, he says, flout state laws. The CFPB says nearly all payday loan contracts have mandatory arbitration clauses.
 
The U.S. Chamber of Commerce, like the bankers group, is critical of the proposed rule, saying it “will have the effect of eliminating arbitration for most consumers.”
 
That’s not necessarily true. Banks can still require individual disputes to be arbitrated, a process in which they win most of the time.
 
For consumers, meanwhile, it’s hard to see any disadvantage in the proposed rule. They should thank the CFPB for saving them from the pitfalls of fine print.

If arbitration is evil if forced on car dealers, why is it OK for car dealers to force it on consumers?

Here’s what Republican Senator Chuck Grassley of Iowa had to say, in favor of the legislation he authored, giving car dealers a special exemption from being forced to arbitrate their claims, in order to purchase a franchise to sell cars:

“While arbitration serves an important function as an efficient alternative to court, some trade-offs must be considered by both parties, such as limited judicial review and less formal procedures regarding discovery and rules of evidence. When mandatory binding arbitration is forced upon a party, for example when it is placed in a boiler-plate agreement, it deprives the weaker party the opportunity to elect another forum. As a proponent of arbitration I believe it is critical to ensure that the selection of arbitration is voluntary and fair…Unequal bargaining power exists in contracts between automobile and truck dealers and their manufacturers. The manufacturer drafts the contract and presents it to dealers with no opportunity to negotiate…The purpose of arbitration is to reduce costly, time-consuming litigation, not to force a party to an adhesion contract to waive access to judicial or administrative forums for the pursuit of rights under State law.”

Senator Grassley also said:
“This legislation will go a long way toward ensuring that parties will not be forced into binding arbitration and thereby lose important statutory rights. I am confident that given its many advantages arbitration will often be elected. But it is essential for public policy reasons and basic fairness that both parties to this type of contract have the freedom to make their own decisions based on the circumstances of the case.”

Couldn’t have said it better myself. So how come he and his colleagues in the House have changed their tune, when it comes to consumers?

Could it be that Sen. Grassley and the Republican Congress rely on campaign contributions from Wall Street crooks who pass on a tidy portion of the $$ they extract from consumers, via the Rip-off TAX? Hmmmmm….

"Forced arbitration should be entirely banned from consumer contracts. But a rule allowing class-action lawsuits will do for now."

Fine print finagle: Away with ‘mandatory arbitration’ in contracts
May 16, 2016 12:00 AM

By the Editorial Board

A federal watchdog agency has the opportunity to protect consumers in a big way.

The Consumer Financial Protection Bureau has proposed a rule that would bar companies from forcing customers and clients to resolve disputes through arbitration. This practice has reached epidemic proportions in recent years, with entities ranging from banks to nursing homes to landlords and cable and cellular telephone providers sneaking mandatory arbitration language into contracts that many consumers sign without reading.

Even if they do read and understand the arbitration provision, what can consumers do? If they want a service and the provider requires arbitration, consumers have little choice but to sign their rights away. That’s exactly what mandatory arbitration does. It takes away a person’s right to seek redress through the courts (except small-claims courts), and more important, it bars consumers from coming together in class-action lawsuits that are especially effective for bringing companies to account for wrongdoing and changing their behavior. In a recent letter to the bureau, dozens of social justice and consumer organizations described mandatory arbitration as a “license to steal.”

No wonder companies love it.

But the writing — or in this case, the fine print — is on the wall. The use of mandatory arbitration has become so prevalent, and the potential for abuse so widespread, that the bureau has proposed limiting it. Under the proposed rule, companies would not be able to keep customers from initiating or joining class-action suits, though individual suits could still be precluded.

The bureau was created in 2008 amid a recession triggered partly by predatory lending practices. Its job, it says on its website, is “rooting out unfair, deceptive or abusive acts.” Forced arbitration is all three. A long list of organizations, including the NAACP, the Center for Justice & Democracy and the Southern Poverty Law Center, have lined up in support of the rule, which is at least months away from being implemented.

Forced arbitration should be entirely banned from consumer contracts. But a rule allowing class-action lawsuits will do for now.

How you can help in the fight against these unfair practices

Discover
Tell the CFPB to restore your rights to hold Wall Street accountable!

A Rigged System

Forced arbitration clauses are buried in the fine print of
-- bank account and credit card agreements,
-- employment applications,
-- college enrollment forms,
-- nursing home admission documents

and nearly every other transaction Americans encounter every day.  

Forced arbitration slams the courthouse doors shut on consumers, employees, and students when they are cheated, harassed, and discriminated against by corporations.

Instead of being able to hold the corporation accountable in court, you’ll be forced into arbitration – a rigged system where the corporation gets to pick the arbitrator and you can get stuck paying the fees. There’s almost no chance of appeal, the process is completely secret, and your right to justice is denied.

But there’s a way to fight back. The Consumer Financial Protection Bureau is considering a rule that would restore your rights if you have been injured because a financial institution has broken the law. The CFPB needs to hear from you that forced arbitration puts your financial security at risk.

Please click here to tell the CFPB to protect consumers who want to hold big corporations accountable and ban forced arbitration!

The Problem

In March 2015, the CFPB released a comprehensive 728-page study on the use of forced arbitration in consumer financial products like checking accounts, payday loans, and credit cards. It found that these clauses are pervasive, affecting tens of millions of Americans across the country.

7% - Consumers are blindsided by forced arbitration. According to the report, only 7 percent of consumers understood that forced arbitration clauses restricted their right to hold financial institutions accountable in court.

9% - Forced arbitration is rigged against consumers. In 2010 and 2011, consumers with claims against financial institutions received relief in only 9 percent of arbitrations.

93% - On the other hand, when corporations went after their customers, the corporation won in 93 percent of arbitrations.

80% - Corporate America is a repeat player in forced arbitration. Corporate repeat players dominated arbitration filings in 2010 and 2011, constituting over 80 percent of filings.

12% - The CFPB found that in arbitration, consumers won on average 12 percent of every dollar they claimed. This is in stark contrast to the arbitration awards for corporations, who won 98 percent of every dollar claimed.

This is in stark contrast to the arbitration awards for corporations, who won 98 cents for every dollar claimed.

The Solution -- CFPB acts to restore consumers’ rights in contracts for financial services and products

Forced arbitration was among the leading consumer protection concerns for Congress when it created the Consumer Financial Protection Bureau. Congress empowered the Bureau to restrict or ban the use of forced arbitration in financial services or products as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Dodd-Frank required the CFPB to study the use of forced arbitration against consumers in disputes over financial services and products and to provide a report to Congress on its findings prior to issuing a rule. The study, released in March 2015, is both comprehensive and conclusive, and confirms that forced arbitration suppresses consumer claims and allows the financial services industry to completely evade the law.

“In a contest between just me – a restaurant in Oakland, California – and American Express, who do you think wins?”Alan Carlson, owner of Italian Colors Restaurant in Oakland

A Timeline of Forced Arbitration Used to Protect Corporate Wrongdoers and Snare Consumers in a System Rigged Against Them

1999
Forced arbitration clauses were virtually non-existent in consumer contracts. While arbitration had long been used to resolve disputes, it was voluntarily – and knowingly – entered into by both parties after the dispute arose.

2000
Corporate executives from Bank of America, Chase, Citigroup, Discover, Sears, Toyota, and General Electric conspired to impose forced arbitration on consumers with the goal of “killing class actions and send plaintiffs’ lawyers to the ‘employment line.’” Within months, many of these companies adopted forced arbitration clauses in their contracts.

2005
The forced arbitration conspiracy hits a road block when the California Supreme Court rules in favor of consumers in Discover Bank v. Superior Court, which held that forced arbitration clauses with class action waivers are unenforceable under California law where the plaintiff alleges that “the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money."

2009
The Minnesota Attorney General brings an action against one of Wall Street’s favorite arbiters, the National Arbitration Forum, for consumer fraud, deceptive trade, and false statements in advertising. As a result, NAF agreed to stop accepting consumer debt collection cases.

2010
The Dodd-Frank Wall Street Reform and Consumer Protection Act passes Congress and is signed by President Obama into law. The law instructs the Consumer Financial Protection Bureau to study the use of pre-dispute arbitration in consumer financial contracts and act in the public’s interest by restoring consumers' ability to choose how to resolve disputes.

2011
In AT&T Mobility v. Concepcion, the U.S. Supreme Court ruled 5-4 that the Federal Arbitration Act (“FAA”) allows corporations to ban class actions and force consumers into a corporate-designed system of forced arbitration – even when an existing state law protects individuals from abusive forced arbitration clauses. The decision overturns the California Supreme Court decision in Discover Bank v. Superior Court.

2013
In American Express Co. v. Italian Colors Restaurant, the U.S. Supreme Court ruled 5-3 that forced arbitration clauses are enforceable even when it can be proven that the clause makes it impossible for any consumers to assert their rights. Justice Elena Kagan described this effect in her dissent from a gleefully pro-corporate decision that further expanded forced arbitration: “The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. [The Court’s response to consumers is] Too darn bad.”

2015
The CFPB releases its three-year, 728-page study on forced arbitration, which confirmed the devastating impact forced arbitration has had on the ability of Americans to hold financial institutions accountable for wrongdoing.2016
The CFPB proposes a rule that will open the courthouse doors to Americans who are victims of Wall Street wrongdoing.

Tell the CFPB to restore our right to hold Wall Street accountable!

More Stories of Forced Arbitration
Alan C.Alan owns a small restaurant in Oakland, CA. He tried to hold American Express accountable in a class action lawsuit for antitrust violations for compelling merchants to accept Amex credit cards and pay exorbitant fees. His case made it all the way to the Supreme Court, but five conservative justices ruled that Amex’s fine print meant he couldn’t band together in a class action. READ More

Dean C.Dean suffered from dementia and was admitted to a nursing home near his home in Minnesota. But just two weeks later, he had lost 20 pounds and was severely dehydrated. He was rushed to a nearby hospital, but it was too late. When his family tried to hold the nursing home accountable, they were instead forced into arbitration, unable to find justice in a court of law.  READ More

Tia H.Tia was training to become a manager at the now-defunct electronics store Circuit City when her boss began sexually harassing her with inappropriate comments and lewd behavior. Other managers did nothing, and when Tia filed a sexual harassment lawsuit, her case was thrown out of court because of a forced arbitration clause buried in her employment agreement. READ More

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