The CFPB Does Its Job. Will Congress Let It Stand?07/25/2017
It is 775 pages long. I have not read all of it. But I know this: it is a great win for consumers.
On Monday, July 10, 2017, the Consumer Financial Protection Bureau (CFPB) issued its final rule banning providers of various consumer financial products and services – credit cards and the like – from using arbitration agreements to bar the filing of or participation in a class action. Arbitration is an alternative form of dispute resolution, almost always held in secret, before an individual paid by one or both sides; the parties forego the right to trial by jury and the protections of an independent judicial system, including a neutral judge, the rules of civil procedure and evidence and the transparency of open proceedings. It may work in some settings, between parties of equal bargaining power and when openly agreed to, after a dispute arises. But when buried in the fine print of contracts, often with a clause preventing any kind of group or class action, forced arbitration serves simply to insulate companies from accountability.
Say your phone company rips you off to the tune of $30. You will likely be angry. You will complain to some friends. You might even spend a little time on the phone, working your way through the company’s customer service and billing bureaucracy. But when you get no relief there, are you going to file a lawsuit over that $30? Or seek arbitration with the company, either by yourself or with the assistance of a lawyer you may have to pay on an hourly basis? The answer, for the vast majority of Americans, is a resounding “no.”
Companies count on that. They bank on the fact that it is not really worth your time or energy to fight over $30. Or your neighbor’s time. Or the time of the thousands – or maybe millions – of other people they ripped off too. But wow, $30 times thousands or millions of consumers? That is a pretty penny to pocket, all while facing no liability.
When it enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (you never knew the title was that long, did you?), Congress directed the CFPB to study the pre-dispute arbitration agreements embedded in contracts governing consumer financial products and services under the agency’s jurisdiction. Study they did. In early 2015, the CFPB delivered a detailed final report, likely the most comprehensive empirical study of arbitration ever seen. The results showed individuals almost never file for arbitration and when they do, companies usually win. As CFPB Director Richard Cordray said at the time, “consumers seem to be indicating that it rarely makes sense for them to bring an individual claim with only a small amount at stake.”
That, Public Justice Executive Director Paul Bland noted, is a win-win situation for the powerful: companies “get to hide their business practices and defraud consumers while also denying those customers the right to band together and take them to court.”
The new rule, set to take effect 60 days after its publication in the Federal Register, modifies the terrain, restoring the ability of consumers to ban together to fight fraudulent and abusive practices and, perhaps, effect real change. It also works to address the lack of transparency associated with arbitration by requiring providers with forced arbitration agreements to submit certain information and records regarding arbitral and court proceedings to the CFPB. With this, the agency can continue monitoring disputes and actively working to protect consumers.
American Association for Justice (AAJ) President Julie Kane remarked earlier this week, “When Americans are cheated by financial schemes and frauds like those perpetrated by Wells Fargo, they deserve a fair and transparent path with which to hold banks accountable.” The CFPB’s rule is an important step in clearing the way.
But there is a looming fight. Some in Congress have already indicated their intent to challenge the CFPB’s rule, arguing the agency has “gone rogue again.” Time to burn up the phone lines and the Twitter feeds, telling Congress to stand with consumers and against crooked companies.