Big Lie No. 2: Class actions only benefit the attorneys.

The CFPB studied 419 consumer financial class actions and found $2.7 billion in relief for consumers, with only 18 percent of that going to attorneys. That is, $2.2 billion went to consumers. The math I was taught says that $2.2 billion is a pretty big benefit and is a lot more than the attorneys got.

Lawyers who represent consumers work for years without pay, fighting against mega-banks, and when they win, they are paid for doing their jobs. I don’t hear lobbyists complaining about the money Wall Street lawyers make fighting against these cases and dragging them out — even in arbitration (link).

What's more, I bet the average person would rather see the consumer lawyers get paid for holding banks accountable than let a bank illegally take $100 each from a million people.

A few anecdotes about class actions when held up against the CFPB’s extensive data don’t justify taking away everyone’s day in court. The CFPB's extensive data about the benefit of class actions for consumers also refute any anecdotes about supposedly frivolous lawsuits.

Should we make all industry debt-buyers (a form of debt collector you never want to meet) give up the right to file lawsuits because some (many) sue the wrong person, seek the wrong amount or file suits after the statute of limitations has passed?

We often hear that older Americans want to "age in place." Aging in place means living at home in the community, rather than in an institutional setting, like a nursing facility. This is the choice most people want to make even if they need services and support to do so. 

With over ten thousand people turning age 62 every day, and with a majority of them homeowners, a growing number of businesses are increasingly using the phrase aging in place to market financial products and services to homeowners in the baby boom generation. Many reverse mortgage lenders, for example, advertise that a reverse mortgage loan will enable you to continue living in your current home so you can age in place. 

Many of these businesses and lenders, however, are incorrectly implying that staying in your current home is the only option for aging in place. 

Although the promise of staying put is attractive to many, remaining in your current home may not be a good plan for everyone. For example, your home may have many stairs, be expensive to heat and cool or repair, require costly taxes and insurance payments, have limited or no public transportation nearby, or be far from family, friends, and community activities.

Though it’s hard to envision an older you, think about what you want to be doing and what you can afford to do in ten, twenty, or more years from now. If you’re in your sixties, there’s a good chance you’ll live into your eighties or your nineties. 
Here are some things to consider if you’re thinking about aging in place in your current home:

• Will you be able to keep up with home maintenance, repairs, taxes, and other costs over time?
• Will you be living near family or friends when you may need their help? 
• Does staying in your current home give you the freedom to do the things that you like to do, such as traveling?
• Will you be able to get to the places you want or need to go, such as to doctors’ appointments, friends’ homes, and places of worship, if your ability to drive becomes limited?
  

Before borrowing a reverse mortgage loan to pay for expensive home modifications or for other expenses to stay in your current home, consider all available housing options. There are many ways to age in place. Whether you live in the same home you’ve been in for decades or in a new place that fits your current needs, aging in place, most importantly, is about your right to live independently in the community of your choice.

The new marketing pitches can appeal to the emotional ties we have to our homes. It’s hard to imagine leaving a home you’ve lived in for many years, even if growing older in your home no longer makes sense. Moving can be overwhelming if you’ve lived in your home for many years, raised children there, or accumulated a lot of stuff over the years. If you’re nodding your head as you read, you’re likely the precise demographic that these businesses are targeting. 

Try not to let emotions or worries influence a decision that could put at risk your future financial, as well as your physical, well-being. Think about what makes sense for an older you, both personally and financially. Some decisions you may make about your home today may limit your options down the road, which in turn may prevent you from aging in the place you most want to be.

When asked to update terms and conditions on the app, I didn't pay attention to what Spotify wanted, though it included the word "arbitration."

That's what most people do with contracts, especially the little-money items. I just wanted my old-school Prince song.

It's not until something goes wrong that the fine print gets a read, and it's never good news for the average consumer.

This week, after more than a year since the Consumer Financial Protection Bureau posted a rule change on the Federal Register, the director of the agency announced that companies can no longer use mandatory arbitration clauses to deny groups of people their day in court.

These are those little-noticed passages in contracts that prevent consumers from banding together in class-action lawsuits and, instead, forces them into arbitration.

Although arbitration sounds like a middle-ground and cost-effective solution, it has turned into a David-and-Goliath story in many cases.

A brief history: The journey to arbitration's powerful and controversial position started with the 1925 Federal Arbitration Act, which had a narrow focus on "maritime transactions and contracts." It was expanded to become a private process for companies to enter into arbitration for legally binding resolutions.

The situation was meant for entities of equal bargaining power.

As time went on, businesses started pushing the boundaries on how far to use mandated arbitration, with it really taking off in the 1990s as corporate lawyers sought a way to cut down on class-action lawsuits. Now, these clauses are in hundreds of millions of contracts.

It helps to understand how arbitration works. It's a private process overseen by a mediator - usually a retired judge or attorney - in legal offices to find a solution to a consumer dispute. Parties are commonly barred from talking about what happened.

So it's a pretty secret deal.

The New York Times published a series in fall 2015 outlining the abuses of the clauses and conflicts of interests among mediators, including a case involving Supreme Court Chief Justice John Roberts. Reporters showed how consumers had few options, and court rulings favored arbitration even when those rulings did not pass legal muster.

“Corporate Immunity Bill” Would Let Investment Firms Steal Money from Workers’ Retirement Accounts
by Leslie Bailey
Staff Attorney, Public Justice

It’s no secret that most Americans are struggling to save enough money for retirement.  Some are just trying to make ends meet and can’t spare the money, and others work at jobs that don’t offer 401(K) plans.  But one thing is certain: if you’re among the one-in-three Americans who are able to set aside some of your hard-earned cash for the future, and you put your trust in an investment company, the last thing you want is for that company to exploit your trust for its own financial gain.
That’s exactly what Nationwide Life Insurance did, according to a class action lawsuit brought in federal court. Nationwide is one of the largest insurance and financial services companies in the world, with more than $158 billion in statutory assets.  It’s the third-largest writer of 401(k) contracts in the country, handling over 72,000 retirement plans covering hundreds of thousands of workers.  But according to the plaintiffs in the lawsuit, Nationwide—which specifically markets itself to small and medium-sized employers—took advantage of its customers’ trust, devising a scheme by which it skimmed cash from mutual funds in exchange for giving those funds access to its enormous (and extremely valuable) market of retirement plans.
Here’s how the scheme worked: 

Nationwide was already charging retirement plans certain administrative fees, but in the mid-1990’s, according to court records, Nationwide decided to try a different kind of pricing.  Under the new practice—called “revenue sharing”—the company began charging mutual funds a new fee to be placed on a “menu” of investment options for retirement plan participants.  Only those mutual funds willing to “pay to play” were given access to Nationwide’s retirement plans and shown to investors.  The more a mutual fund paid Nationwide, the more Nationwide would promote it to plan participants; and customers weren’t given the option to invest in plans that didn’t pay Nationwide’s fee.  But Nationwide didn’t pass the payments it received from the mutual funds on to the workers’ retirement plans.  Instead, it pocketed the money for itself.  And, of course, it didn’t tell its customers about any of this.  This alleged self-dealing harmed workers by diverting money that would have gone into their retirement plans to the company’s bottom line.

Then Allen Gouse, the trustee of the 401(K) plan at the Greater Hartford Easter Seal Rehabilitation Center, Inc., in Connecticut, read the fine print and figured out something was wrong.  Along with Lou Haddock, the owner of Crown Tool & Die Co. and his employees’ 401(K) trustee, Mr. Gouse—on behalf of 72,000 other retirement plans that had contracted with Nationwide—filed a class action lawsuit claiming that Nationwide’s secret asset-skimming scheme violated a federal law known as ERISA (the Employee Retirement Income Security Act of 1974).  

Under ERISA, a company that exercises discretionary authority over people’s retirement investments is a fiduciary, and as a fiduciary it has a duty to act in those people’s best interests. Selling access to workers’ money for profit, as Nationwide allegedly did, violates the law. This rule makes sense. Imagine that you own a home. You’re leaving on a trip, but you have a pet and you don’t want your vacant house to be at risk of vandalism or break-ins.  So you make arrangements with a friend to house-sit.  You have peace of mind, and in exchange your friend has a free place to stay while you’re away.  But what if you come back to discover that instead of staying there herself, your friend rented out your house online to tourists at a nightly rate, making thousands of dollars?  You’d be pretty upset—not only was your trust violated, but you’d be right to think that all the money your friend made renting out your property rightfully belongs to you.

That’s what Gouse, Haddock, and the plaintiffs argued—and after 13 years of hard-fought litigation, the class action settled for a whopping $140,000,000.  Hundreds of thousands of middle-class American workers will directly benefit from the settlement, which has put $78,000,000 back into their retirement accounts—money which, over time, will grow to a much larger amount in the tax-sheltered 401(k) accounts.  Nationwide also agreed to change how it does business—and, most importantly, it must now disclose all fees it accepts from mutual funds and give customers the option to choose mutual funds that do not pay fees to Nationwide.

Given the complexity of Nationwide’s alleged fraud, and the difficulty of the litigation, there’s no question that this case could only have been brought as a class action.  Most trustees of 401(K) plans, no matter how diligent, would not have caught Nationwide’s sleight-of-hand on their own.  And even if a handful had, no one person could have gone up against the company alone; it takes a large number of victims joining together to force a company this powerful to make it right.  A class action also just makes the most sense:  if a company cheats everyone in the country in the same exact way, it should have to answer to all of them—even if the victims lost different amounts of money.

But class actions, and settlements like this one, may be a thing of the past if a new bill supported by the U.S. Chamber of Commerce becomes law.  H.R. 985 would prohibit federal courts from approving a class action settlement unless every single member of the class had “suffered the same type and scope of injury as the named class representatives.” 

That means Haddock and Gouse could not have sued together—let alone on behalf of hundreds of thousands their fellow trustees and workers—if one lost more (or less) money than the other from Nationwide’s scam. But of course, no one’s retirement account is identical to anyone else’s—depending on what wages or salary each worker made, and how much he or she put into her 401(K), each individual victim of Nationwide’s alleged scam almost certainly lost a unique dollar amount, and thus had a different “scope of injury.”

This is just one example of why H.R. 985 is a terrible deal for American consumers.
It’s past time for Congress to retire its unfair attacks on class action lawsuits. If consumers can’t count on companies like Nationwide to be on their side, they should at least have confidence that the law – and those elected to look out for their constituents – will be.

The Consumer Financial Protection Bureau (CFPB) today announced a new rule to ban companies from using mandatory arbitration clauses to deny groups of people their day in court. Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. By forcing consumers to give up or go it alone – usually over small amounts – companies can sidestep the court system, avoid big refunds, and continue harmful practices. The CFPB's new rule will deter wrongdoing by restoring consumers' right to join together to pursue justice and relief through group lawsuits.

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," said CFPB Director Richard Cordray. "These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together."

Hundreds of millions of contracts for consumer financial products and services have included mandatory arbitration clauses. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for individual cases brought in small claims court. While these clauses can block any lawsuit, companies almost exclusively use them to block group lawsuits, which are also known as "class action" lawsuits. With group lawsuits, a few consumers can pursue relief on behalf of everyone who has been harmed by a company's practices. Almost all mandatory arbitration clauses force each harmed consumer to pursue individual claims against the company, no matter how many consumers are injured by the same conduct.  However, consumers almost never spend the time or money to pursue formal claims when the amounts at stake are small.

The Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also authorized the Bureau to issue regulations that are in the public interest, that are for the protection of consumers, and which are based on findings that are consistent with the Bureau's study of arbitration. Released in March 2015, the study showed that credit card issuers representing more than half of all credit card debt and banks representing 44 percent of insured deposits used mandatory arbitration clauses. Yet three out of four consumers the Bureau surveyed did not know whether their credit card agreement had an arbitration clause. These clauses are not only common and unknown; they are also bad for consumers. By blocking group lawsuits, companies are able to:

·Deny consumers their day in court: The study showed that few consumers ever bring – or consider bringing – individual actions against their financial service providers either in court or in arbitration. Only about 2 percent of consumers with credit cards surveyed said they would consult an attorney or consider formal legal action to resolve a small-dollar dispute. As a result, the real effect of mandatory arbitration clauses is to insulate companies from most legal proceedings altogether.

·Avoid paying out big refunds: Individual actions get less overall relief for consumers than group lawsuits because companies do not have to provide relief to everyone harmed. According to the study, group lawsuits succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year. The study showed that over 34 million consumers received payments, and that $1 billion was paid out to harmed consumers over the five-year period studied. Conversely, in the roughly one thousand cases in the two years that were studied, arbitrators awarded a combined total of about $360,000 in relief to 78 consumers.

·Continue harmful practices: Individual actions might recoup previous individual losses, but they do nothing to stop the harm from happening again or to others. Resolving group lawsuits often requires companies to not only pay everyone back, but also change their conduct moving forward. This saves countless consumers the pain and expense of experiencing the same harm. The Bureau's study found that in 53 group settlements covering over 106 million consumers, companies agreed to change their business practices or implement new compliance programs. Without group lawsuits, private citizens have almost no way, on their own, to stop companies from pursuing profitable practices that may violate the law.

CFPB Arbitration Rule

The CFPB rule restores consumers' right to file or join group lawsuits. By so doing, the rule also deters companies from violating the law. When companies know they are more likely to be held accountable by consumers for any misconduct, they are less likely to engage in unlawful practices that can cause harm. Further, public attention on the practices of one company can more broadly influence their business practices and those of other companies. Under the rule, companies can still include arbitration clauses in their contracts. But companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.

The rule also makes the individual arbitration process more transparent by requiring companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration. The Bureau will collect correspondence companies receive from arbitration administrators regarding a company's non-payment of arbitration fees and its failure to follow the arbitrator's fairness standards. Gathering these materials will enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair. The materials must be submitted with appropriate redactions of personal information. The Bureau intends to publish these redacted materials on its website beginning in July 2019.

The new CFPB rule applies to the major markets for consumer financial products and services overseen by the Bureau, including those that lend money, store money, and move or exchange money. Congress already prohibits arbitration agreements in the largest market that the Bureau oversees – the residential mortgage market. In the Military Lending Act, Congress also has prohibited such agreements in many forms of credit extended to servicemembers and their families. The rule's exemptions include employers when offering consumer financial products or services for employees as an employee benefit; entities regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission, which have their own arbitration rules; broker dealers and investment advisers overseen by state regulators; and state and tribal governments that have sovereign immunity from private lawsuits.

In October 2015, the Bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. Besides consulting with small business representatives, the Bureau sought comments from the public, consumer groups, industry, and other interested parties before continuing with the rulemaking. In May 2016, the Bureau issued a proposed rule that included a request for public comment. The Bureau received more than 110,000 comments.

The rule's effective date is 60 days following publication in the Federal Register and applies to contracts entered into more than 180 days after that.

More information about the CFPB's arbitration rule is available at: https://www.consumerfinance.gov/arbitration-rule/

The text of the arbitration rule is available at: http://files.consumerfinance.gov/f/documents/201707_cfpb_Arbitration-Agreements-Rule.pdf

A CFPB video explaining the arbitration rule is available at: https://youtu.be/boQ2tRW_AwE

Thank you,

Office of Community Affairs
Consumer Financial Protection Bureau