Consumer Law & Policy Blog

Forced arbitration of claim on behalf of non-party to arbitration agreement

In light of the steady march toward maximum judicial enforcement of arbitration clauses, perhaps nothing should surprise us anymore, but a recent federal district court decision caught the eyes of several of us here at CL&P Blog. This decision, from the Southern District of Ohio, ruled that a dispute was subject to arbitration even though one of the plaintiff's claims involved the right of a party that never agreed to arbitration -- specifically, the United States, whose interest in the case arose under the False Claims Act -- to recover for having been defrauded. (The FCA permits individuals who uncover a fruad against the federal government to sue in the government's name for the wrongdoing, with a share of the recovery going to the plaintiff and a share to the government. See 31 USC § 3730.)

Subjecting the rights of a non-party (a sovereign party at that) to an arbitration agreement to which it wasn't a party would seem problematic, but the court had no problem with it, explaining that statutory rights are often subject to arbitration and that "[w]hile the FCA action was necessarily 'brought in the name of the Government,' it still represents a claim belonging to the Plaintiffs themselves." (citation omitted)

If there is any limiting principle possible in this context, it could be that the U.S. had the opportunity to intervene in the lawsuit but did not, as the court also pointed out. But the government's right to recover is at stake whether or not it intervenes -- the FCA provides that even without intervening, the U.S. still recovers the lion's share of the amount by which it was defrauded.

The full decision can be accessed here.

 

CFPB Wants to Hear From Students

Here's the email they sent out:

 

Good afternoon,  

We need your help to figure out what’s the deal with financial products marketed to students, like debit cards and checking accounts.  

Email us at CFPB_StudentsFedReg@cfpb.gov by March 18 to tell us about any aspect of your experience.  

That may include:

• Signing up for the card or account
• Fees you’re charged to use the card or account
• Which cards or accounts you chose, whether your school recommended them or you
       shopped around

College is a time when many of us signed up for our first bank account. Often schools set up agreements with financial companies to offer cards and accounts to their students. Today, many students can add banking services on to their student ID card to pay for everything from a load of laundry to shopping online.  

While credit card issuers publicly disclose these types of agreements with schools, we know less about these arrangements when it comes to other student products, like student checking accounts and debit cards to access student loan funds. We want to see if students are getting a good deal and what schools can do to help them through the process.  

That’s why we need your help. We want to hear about your experience with financial products designed for college students.  

We’ll use your comments to work with school officials on ways they can make sure that schools and students are getting off on the right foot when it comes to managing their money during college. We’ll also publish a summary for everyone who contributes and let you know how you can continue to help make sure the market is working for everyone.  

Tell us your two cents today. 
 

Thank you,

Rohit Chopra
Student Loan Ombudsman 

 P.S. -- Learn more about our work for students.

Carolyn Dessin Paper: Arbitrability and Vulnerability

Carolyn Dessin of Akron has written Arbitrability and Vulnerability, 21 Temple Political & Civil Rights Law Review, 349 (2012).  Here's the abstract:

Arbitration is cool. Everybody's doing it. In the eighty-five years since the passage of the Federal Arbitration Act, that seems to be the prevailing sentiment. Recent decades have seen the meteoric rise of arbitration as a form of alternative dispute resolution. Arbitration is widely regarded as a less expensive, more expeditious alternative to litigation.

Courts frequently note that federal policy clearly favors arbitration. No judicial enthusiasm for arbitration seems more complete than that evidenced in the jurisprudence of the United States Supreme Court.

Along with the rise of arbitration, however, there has also been a rise in the amount of criticism of arbitration. Some suggest that nothing short of a complete overhaul of the Federal Arbitration Act will correct problems that have arisen in the arbitration context.

One of the main focuses of the criticism has been against mandatory binding pre-dispute arbitration in the consumer context. The United States has condoned this species of arbitration in an unparalled fashion, and some suggest that our country has gone too far. One of the major concerns in this area is that it is unlikely that a consumer can knowingly agree to arbitrate claims that have not yet arisen.

This Article focuses on mandatory pre-dispute arbitration agreements in the context of a situation involving a vulnerable party. As the
discussion will illustrate, there is no precise definition of vulnerability. Although most of the cases discussed herein involve older vulnerable adults, the concerns in this area frequently arise in other contexts as well. Thus, the author suggests that the discomfort exhibited by courts in dealing with these cases may suggest a broader discomfort with mandatory pre-dispute arbitration agreements in the consumer context.

 

 

States Join Separation-of-Powers Suit Against the CFPB

Remember the Big Spring suit? That's the case challenging various provisions of the Dodd-Frank Wall St. reform law, including the legality of the Consumer Financial Protection Bureau, on separation-of-powers grounds. That suit includes, but is by no means limited to, a challenge to Richard Cordray's appointment as CFPB director as an impermissible (non-)recess appointment. The Blog of the Legal Times reports today that eight states -- Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas, and West Virginia -- have joined the suit as plaintiffs. (Michigan, Oklahoma and South Carolina were already plaintiffs.) It is amazing the degree to which some states are waging legal war with the Obama Administration.

"Countering the Problem of Falsified and Substandard Drugs"

That's the name of this report from the Institute of Medicine (eds. Lawrence Gostin and Gillian Buckley). The Food and Drug Administration and similar regulatory agencies around the world seek to protect consumers by approving drugs only if they are reasonably safe and effective for their intended uses. But that objective is undermined when bad (unapproved) drugs get on the market. Most, but not all, problems occur in the developing world. The report describes the problem and how to mitigate or solve it.  Here's the Institute of Medicine's summary:

Falsified and substandard medicines provide little protection from disease and, worse, can expose consumers to major harm. Bad drugs pose potential threats around the world, but the nature of the risk varies by country, with higher risk in countries with minimal or non-existent regulatory oversight. While developed countries are not immune, – negligent production at a Massachusetts compounding pharmacy killed 44 people from September 2012 to January 2013 – the vast majority of problems occur in developing countries where underpowered and unsafe medicines affect millions. It is difficult to measure the public health burden of falsified and substandard drugs, the number of deaths they cause, or the amount of time and money wasted using them. The FDA asked the IOM to assess the global public health implications of falsified, substandard, and counterfeit pharmaceuticals to help jump start international discourse about this problem. At the international level, productive discussion relies on cooperation and mutual trust. This report lays out a plan to invest in quality to improve public health.

Republican Response to State of the Union Blames Fiscal Crisis on "Reckless Government Policies"

by Jeff Sovern

You can read Senator Rubio's speech here.  Here's the key language: "a major cause of our recent downturn was a housing crisis created by reckless government policies."  He doesn't specify the policies, but he's probably referring to the old, thoroughly debunked, claim that the CRA caused the subprime crisis, something the Republican presidential candidates also said during a debate.  Paul Krugman has more here.  Sigh.  If reality is inconvenient, just repeat something that few people know about and so many will believe it. 

American Banker Report: Warren, Senate Dems Give No Ground on CFPB Structure

Here. 

Times Editorial on FTC Credit Reporting Report

Victimized by Credit Reports.  An excerpt:

Given the evidence, it is imperative that the federal government do more to make the credit-reporting process transparent and to protect consumers from errors that can drive up their borrowing costs and cause them to be denied jobs or be turned away by landlords.

* * *

* * * Congress . . . could require all credit or background check agencies to register with the federal government and to adhere to strict accuracy standards. It could give consumers the right to view all credit information that agencies collect about them.       

Finally, it could strengthen an existing law that requires that consumers receive notice when they are denied jobs, credit or are in any way disadvantaged by unfavorable credit report information. Sometimes such notices are never sent; Congress should give the consumers the right to sue when this happens.

Massachusetts asks SEC to Address Investment Advisors' Use of Mandatory Arbitration Clauses

In a letter to the U.S. Securities and Exchange Commission, Massachusetts Secretary William Galvin is asking the SEC to consider a ban on binding pre-dispute arbitration clauses in investor advisor contracts, citing a survey that found them prevalent in contracts between investment advisers and their clients. In the alternative, Galvin asks that the SEC undertake a study of issues raised by the prevalence of such clauses.

The letter follows the release on Monday of a survey performed by the Secretary’s office, in which 50 percent of the investment advisors who responded reported that they insert mandatory pre-dispute binding arbitration clauses in contracts with clients.

The Dodd-Frank Wall Street Reform Act, enacted in 2010, gave the SEC authority to address and even prohibit the use of such clauses if doing so would be in the public interest and protect investors.

Marco Rubio channels Elizabeth Warren... for just a moment

As the New York Times pointed out (as we noted yesterday), Republicans have continued to oppose the work (and existence) of the CFPB. So I was a little surprised to hear Republican Sen. Marco Rubio's State of the Union response last night include this exhortation: "Today, many graduates face massive student debt. We must give students more information on the costs and benefits of the student loans they’re taking out." Talk of disclosures and consumer understanding makes him sound like a downright CFPB supporter. Let's hope these ideas start showing up in more than one line in more than one Republican speech.