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Forced Arbitration is a Racket and U.S. Consumers are the Victims

10/2/2017

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Forced arbitration seems to be significantly more lucrative for Wells Fargo than other financial institutions. As one might suspect based on the CFPB data, Wells Fargo was awarded more money in arbitration than it was ordered to pay consumers between 2009 and the first half of 2017, despite creating 3.5 million fraudulent accounts during that same period. The average consumer that arbitrated with Wells Fargo was ordered to pay the bank nearly $11,000.10
A mean of $10,826 was awarded to the bank across all publicly available claims.


In contrast, the CFPB study found that class action lawsuits return at least $440 million, after deducting all attorneys’ fees and court costs, to 6.8 million consumers in an average year.11 Thus, banning consumer class actions lets financial institutions keep hundreds of millions of dollars that would otherwise go back to harmed consumers—and there is little doubt that Wells Fargo has harmed huge numbers of consumers in recent years.

Opponents of the CFPB’s arbitration rule additionally claim that allowing consumers to join together in court will increase consumer costs and decrease available credit. Most recently, the Office of the Comptroller of the Currency (OCC) claimed restoring consumers’ right to join together in court could cause interest rates to rise as much as 25 percent.12

However, examining the OCC’s study, it appears the agency merely duplicated the conclusion reached by the CFPB and based its 25 percent estimate solely on results it admits are “statistically insignificant at the 95 percent (and 90 percent) confidence level.”13 In its 2015 study, the CFPB considered this same data and accurately assessed that there was no “statistically significant evidence of an increase in prices among those companies that dropped their arbitration clauses.”14


Great letter from the Economic Policy Institute to the Senate Banking Committee, which is considering whether to override the proposed ban on forced arbitration clauses in consumer finance contracts that prohibit consumers from bringing  class action suits against institutions that practice wholesale fraud and deception, such as Wells Fargo.

Click here to read it all.

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