Consumer Law & Policy Blog

Even Consumer Law Experts Have Consumer Law Problems: Do All Roads Lead to Arbitration?

by Jeff Sovern

Gene DeSantis served 12 years as Counsel to the Assembly Consumer Protection Committee and also taught Consumer Law for 15 years at Syracuse University and 5 years at Albany Law school. During his time as Counsel, he drafted the NYS law prohibiting the use of mandatory arbitration clauses in consumer contracts, which is preempted by the Federal Arbitration Act, as interpreted by the Supreme Court. He writes:

I took out a credit card from TD Bank to give to my son while he attended college . . . . Last December, he had charges of about $71. No problem – I always pay the bill in full, and I incur no finance charges. It works.

But after Christmas I [was away from home for some months.]  I have my mail forwarded, I get all my bills, and I pay them promptly. It all works just fine.

 Except TD Bank does not allow the US Postal Service to forward credit card bills. So, I never got the bill for the two gas purchases my son had made, and several months passed. In March or April I was stunned to get a debt collection call informing me that my TD Bank credit card account was more than 90 days delinquent, and I owed not only the $71 in purchases, but several months of late payment fees as well. The penalties were more than the purchase!

I told TD Bank I could not be delinquent, I had never gotten a bill. They informed me that the bills had been sent to my home in East Greenbush but were undeliverable. I explained that all my bills are forwarded (I get my Chase bills no problem), and was stunned to hear that TD Bank does not allow their credit card bills to be forwarded “for my protection”.

I paid the amount of the purchases immediately but I refused to pay late fees or interest. I have spoken three times or more to TD Bank “customer service representatives” and to “supervisors” but all to no avail. My bill has now ballooned to $136.71 (remember, the purchases of $71 I have paid in full) and it grows each month. I get threatening calls and letters, telling me that my delinquency will be reported to credit bureaus and my credit will be impaired. I tried calling TD Bank one last time but again they were unwilling to waive the penalty fees caused by their refusal to allow my bill to be forwarded.

Because of the mandatory arbitration clause, I cannot sue TD Bank. I feel helpless, despite serving 12 years as Counsel to the Assembly Consumer Protection Committee and teaching Consumer Law for 15 years at Syracuse University and 5 years at Albany Law school. In an incredible irony, I was the counsel who drafted the NYS law prohibiting the use of mandatory arbitration clauses in consumer contracts – a law that is useless thanks to the decisions of Federal courts that have preempted it.

So yesterday I found myself filing a complaint with the CFPB. I asked them not only to help me, but to investigate and intercede to protect the countless number of consumers who have been hit with late fees, interest and penalties by banks that don’t allow their bills to be forwarded, and cause their customers to be late.

Here is Gene's summary: "It is incredible they could cause you to not get your bill and then turn around and penalize you for being late paying the bill they would not allow you to receive." 

And my comment: I wonder how many others have had similar problems. If enough have, this would appear to be appropriate for a class action--but the arbitration clause prevents that.  Sigh.

 

Fortune Commentary on the CFPB's Arbitration Rule: How This New Rule Prevents Your Bank From Ripping You Off

by Jeff Sovern

My latest, here.  Excerpt:

The Wells Fargo case shows the difference between arbitration and class actions: the difference between getting nothing and getting something. * * *

Critics of the rule claim that class actions are just giveaways to lawyers. It’s true that not all class actions work as well as the Wells Fargo one, but the remedy for bad class actions is no more to eliminate them than the remedy for bank misconduct is to eliminate banks. Rather, the remedy is to make sure courts live up to their obligation to approve class action settlements only if they are “fair, reasonable, and adequate.”

 

Ted Mermin Op-Ed: Cordray takes on Wall Street with consumer protection rule

In the SF Chronicle.  The indefatigable Ted teaches consumer law at Berkeley. Here is his conclusion:

So why did Director Cordray [issue the Arbitration Rule despite opposition from the powerful financial lobby]?

Maybe he believes that the American people know a sharp practice when they see one, and that they won’t stand for the undoing of a rule that so obviously protects them.

Maybe he thinks that Congress will ultimately decide that forcing people into the shadows to resolve their disputes undermines the open and public system of justice on which this society was founded.

Maybe he is convinced that any future director will agree that Americans should not be compelled to sign away their constitutional rights every time they want to open a bank account or get a car loan.

Or maybe there is a simpler reason.

Maybe Cordray did it because it was the right thing to do.

Senator Cotton's Ignorance About Ignorance and the CFPB's Arbitration Rule

by Jeff Sovern

Yesterday, according to The Hill, Senator Tom Cotton of Arkansas, announced that he would seek to block the CFPB's Arbitration Rule using the Congressional Review Act, saying:

“The Bureau’s new rule on arbitration clauses ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests . . . ”

Well, ok.  Except that every study that has looked at the issue (including one I co-authored) has found that consumers don't understand arbitration clauses.  See here and here. Not only has no study ever found that consumers understand them, but industry lobbyists concede consumers are not aware of arbitration clauses.  See American Financial Services Association, Comment Letter on Telephone Survey Exploring Consumer Awareness of and Perceptions Regarding Dispute Resolution Provisions in Credit Card Agreements (Aug. 6, 2013) (“The results of the [proposed CFPB] Survey will undoubtedly show that the vast majority of consumers are not aware of most of the provisions in their card agreements . . . . [S]tudies have shown that consumers do not generally read contracts. Accordingly, if consumers do not read contracts generally, there is no reason to assume that they may read an arbitration provision, in particular . . . . [T]he [proposed CFPB telephone] Survey is likely to show that consumers are not generally aware of the arbitration provision in their credit card agreement . . . .”). Cf. U.S. Chamber of Commerce, Statement on Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers, App. 15 (May 18, 2016) (hereinafter, Chamber of Commerce Statement) (“The only data that the Bureau’s study delivers is that, unsurprisingly, consumers are not focused on arbitration clauses.”); U.S. Chamber of Commerce, Comments on Proposed Rulemaking on Arbitration Agreements 31 (Aug. 22, 2016) (same).

If we were to take Senator Cotton's logic to its extreme, we wouldn't require prescriptions for medications, because after all, requiring prescriptions assumes patients are incapable of making medical decisions in their own best interests.  We wouldn't require cars to be safe, because such requirements assume consumers can't make decisions about whether they want a safe car or not.  We would allow anyone to practice law or medicine without a license because . .  .  well, you get the idea.

 

 

When and why does Congress create independent agencies?

Given the political and legal controversy over the Consumer Financial Protection Bureau's status as an independent agency, and the challenge to its structure pending en banc in the D.C. Circuit (go, for instance, here, here, and here), our readers may be interested in The Genesis of Independent Agencies by Patrick Corrigan and RIchard Revesz. Here is the abstract:

The status of independent agencies is almost certainly the most written about and litigated feature of the administrative state. Recently, the legal literature has paid sustained attention to the factors leading the formation of independent agencies. Under what circumstances are agencies more likely to have features insulating them from control by the President? In this Article, using a dataset that we constructed and that had not previously been analyzed, we seek to determine what factors make it more likely that agencies will be accorded what we call “indicia of independence.” We find that three factors in particular play a statistically significant role in making it more or less likely that Congress creates agencies with certain indicia of independence: the approval rating of the President, the size of the Senate majority, and the alignment of the political party of the Senate majority and the President. Of these three variables, two had never been tested prior to our study. In general, we find that Congress is less likely to create agencies with indicia of independence when the President is popular. Additionally, the size of the Senate majority affects whether Congress creates agencies with indicia of independence. When the Senate majority party is aligned with the President, an increase in the size of the majority makes it less likely that Congress will create an agency with indicia of independence. When the Senate majority is not aligned with the President, an increase in the majority makes it more likely that Congress will create an agency with indicia of independence. However, these variables, though statistically significant, do not have much explanatory power. Other unexplained factors for which we do not control in our models explain the majority of the variation in the decision to insulate agencies from presidential control. 

Two lawsuits challenging Trump's "Election Integrity" Commission

Two new lawsuits challenge conduct of Trump's "Election Integrity" Commission. 

ACLU v. Trump maintains that the Commission is meeting in secret and hiding its records in violation of the Federal Advisory Committee Act. Read the complaint here.

And then there is Public Citizen v. U.S. Department of the Army, which Public Citizen describes this way:

The Privacy Act prohibits any agency from collecting, using, maintaining, or disseminating records describing how any individual exercises rights guaranteed by the First Amendment. The Vice Chair of the Presidential Advisory Commission on Election Integrity asked the states to submit such information to the Army, including voter history and political party affiliation. By accepting this data, the Army would violate the Privacy Act’s prohibition on collecting such information; and by allowing the Commission to download this data, the Army would violate the Privacy Act’s prohibition on disseminating this information. Public Citizen therefore filed suit on behalf of its members to prevent the Army from collecting, maintaining, or disseminating the data.

 

Judge gives preliminary approval to Wells Fargo settlement

The Washington Post reports:

Wells Fargo has received preliminary approval to pay out $142 million to customers affected by the bank’s sales practices scandal.

A federal judge gave preliminary approval Saturday to the deal that would settle claims over fraudulent accounts going back to 2002.

The San Francisco-based bank and lawyers for customers reached the agreement earlier this year over accounts that Wells Fargo staff had opened without permission as they sought to meet unrealistic sales goals set by management.

In September, Wells Fargo agreed to pay a combined $185 million fine to state and federal regulators. The biggest scandal in the bank’s history led to the abrupt retirement of its CEO, John Stumpf. Several other top executives have lost their jobs.

Will Congress CRA the CFPB Arbitration Rule? A Roundup

by Jeff Sovern

Here's what David Lazurus says in his LA Times column, Banks and credit card companies can't try to stop you from joining a class action lawsuit — for now:

Consumer advocates — who for months have been gearing up for this fight — tell me they have little doubt the House will swiftly use the Congressional Review Act to undermine the CFPB’s arbitration rule. Then the matter goes to the Senate, and that’s where advocates hope they can mount their defense.

I’m hearing that all roads lead to Sen. Lindsey Graham (R-S.C.), who introduced a bill in 2015 aimed at giving military service members the right to opt out of mandatory arbitration and have their day in court if they believe they were treated unfairly in foreclosure proceedings or other issues involving repossession of property.

I called and emailed Graham’s office Monday. No one responded.

My hunch is that Graham and other Republicans who may be waffling on healthcare won’t also pick a fight on arbitration. They may feel that crushing the CFPB’s new rule will help Senate Leader Mitch McConnell save face after the bruising healthcare battle.

Evan Weinberger has CFPB Bets Congress Will Let Arbitration Rule Slip By in Law360, in which he wrote:

[T]he breadth of industry opposition to the rule will make it harder for Congress to skip over the bureau’s move against arbitration, said Joseph T. Lynyak, a partner with Dorsey & Whitney LLP.

“There seems to be such an imperative, and a coalition being created, to get this thing killed,” he said.

Industry groups including the Chamber and the American Bankers Association have already called on Congress to use the CRA to eliminate the rule.

Emily Stewart's reports in CFPB Class-Action Rule Already in Limbo as Senator Moves to Challenge in The Street that Senator Cotton has started the process of invoking the CRA as to the rule.  Here is  more from her:

"[W]e remain dubious that Congress will permit the rule to take effect," said Cowen analyst Jaret Seiberg in a note on Monday after the rule was announced, adding that he expects Congress to use the CRA to void the arbitration rule.

 If that indeed happens, the CFPB would be barred from reinstating any similar rule in the future without the consent of Congress. * * * 

Congress in May failed to roll back a separate rule by the CFPB intended to make prepaid payment cards more affordable and transparent. Compass Point analyst Isaac Boltansky said in a note the effort to reverse the arbitration rule is "far better positioned politically" than the prepaid rule, but the fate of the rule will "be determined by public perception" in the weeks to come. 

"If the rule is tagged as an eleventh-hour policy aimed at padding the pockets of trial attorneys and setting the stage for an end to arbitration all together, then the odds will be modestly in favor of reversal," he said. If the rule is successfully framed as a valiant defense of consumer rights against Wall Street greed, then the odds will be against reversal." 

Boltansky gives the CFPB's arbitration rule slightly less than a 50% chance of being reversed via the CRA.

Kate Berry and Ian McKendry have written Fight over CFPB arbitration rule may just be starting in the American Banker. Here's some of what they have to say:

"I believe it will be all hands on deck to do a CRA resolution on this rule," said Richard Hunt, president and CEO of the Consumer Bankers Association.

House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, quickly threw his support behind a rollback of the rule. "As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act," said Hensarling.

* * *

Acting Comptroller of the Currency Keith Noreika also sent a letter to Cordray earlier in the day raising questions about the rule's impact on financial stability. * * *

But Eric Goldberg, a CFPB senior counsel, said the CFPB consulted with the Treasury Department and other prudential regulators before issuing the rule.

And on a related topic, Adam Levitin has an excellent discussion about the likelihood that the FSOC will block the rule at Credit Slips.

"The CFPB Wants to Create an Arbitration Database. Companies Will Hate That."

That's the name of this article by C. Ryan Barber (possibly behind a paywall). Here's an excerpt:

When the Consumer Financial Protection Bureau expanded its public database to include narratives of negative customer experiences, banks such as Wells Fargo and other industry players worried about being named and shamed. Now, a new public database could be going up online as part of the agency’s newly finalized arbitration rule—if the regulation survives anticipated challenges on Capitol Hill and in the courts. ... Perhaps because of [industry's] dim view of the future of arbitration, another portion of the CFPB rule has drawn less attention: A requirement that companies give the agency records about individual arbitrations—including any awards—that would still be allowed under the new regulation. The CFPB plans to publish those records, with “appropriate redactions,” on its website, according to the 775-page final rule published Monday.

Why we need to save the Consumer Financial Protection Bureau

by Jeff Sovern

Here.  Call it a long op-ed or a short magazine article, in The Conversation, a forum for academics writing for the public. I co-authored it with my colleagues Gina Calabrese and Ann Goldweber. It discusses life before the CFPB, what the CFPB has done, and the attacks on the Bureau.