Consumer Law & Policy Blog

NerdWallet Article Explores What CFPB Has Done to Help Consumers

Brad Wolverton's article, Your Wallet Will Suffer If This Agency Is Gutted, is an excellent roundup of the Bureau's accomplishments that cuts across a variety of areas, including student loans, credit cards, debt collection, mortgages, payday loans, credit reporting agencies, auto lending, consumer complaints, military protections, and arbitration. Excerpt:

Collectively, for every $1 in federal spending on the agency, more than $4 has been placed back in consumers’ pockets, a review by NerdWallet found. The agency has saved or returned to Americans $12 billion, while costing taxpayers $2.9 billion to operate over that period.

Other improvements, felt by virtually all consumers, have come in the form of lower costs, a more stable economy and new power to resolve individual disputes with financial institutions.

NJ Supreme Court: Failure to Pay Arbitration Fee Costs Ability to Enforce Arbitration Clause

Here. HT: Gregory Gauthier.

Nehf Article on Arbitration's Impact on the Common Law's Regulation of Standard Terms in Consumer Contracts

James P. Nehf of Indiana has written The Impact of Mandatory Arbitration on the Common Law Regulation of Standard Terms in Consumer Contracts, 85 Geo. Wash. Law Review (2017). Here is the abstract:

The focus of this paper is the regulation of standard terms in consumer contracts at common law, i.e., judges deciding cases in published opinions. In particular, I focus on the two most important common law doctrines in this area — unconscionability and good faith — and to a lesser extent on court decisions that interpret consumer statutes. They have all played a central role in regulating standard terms in consumer contracts over the years, yet their continuing role is being threatened by the proliferation of mandatory arbitration provisions in consumer contracts. If this trend continues, the ability of courts to further develop contract doctrine in consumer transactions may be severely limited. I begin with a discussion of the role that common law plays in regulating consumer transactions. I then discuss how the unconscionability and good faith doctrines have evolved as limitations on standard terms in consumer contracts. Next I discuss the increasing use of mandatory arbitration clauses in consumer contracts and the likely effects of this trend on consumer contract litigation. Toward the end of the paper, I explore what this might mean going forward if the common law of unconscionability and good faith in consumer contracts are essentially frozen in time, and if mandatory arbitration results in fewer published decisions interpreting and applying consumer statutes.

Bloomberg's Gregory Roberts: CFPB’s Assault on Arbitration Stuck Between Rock, Hard Place

Here.  Excerpt:

Any move by the CFPB to adopt a final version of its rule would almost certainly prompt Republican lawmakers to overturn it, with a long-term chilling effect on future regulation of the clauses used by banks and other financial services providers.

But if the CFPB does not put out a final rule before the term of the bureau’s director, Democratic appointee Richard Cordray, expires in mid-2018, then whomever Republican President Donald Trump picks to lead the bureau isn’t likely to go ahead with the rule, anyway.

* * *

Stuck in what is likely to be a permanent state of limbo, consumer advocates can do little more than plead with companies to eliminate the clauses themselves, as a coalition of groups did in a Feb. 24 letter to Wells Fargo.

Democrats to Introduce Bills Today to Block Arbitration Clauses

From the press release:

On Tuesday, March 7, Senator Al Franken (D-Minn.) and top Senate and House Democrats will hold a press conference to push legislation to stop the use of unfair forced arbitration clauses, which are widely used by corporations to limit consumers’ and employees’ access to justice.

 The lawmakers will be joined by individuals who have been personally harmed by forced arbitration, including former Fox News anchor Gretchen Carlson.

 From nursing home contracts and employment agreements to credit card and cell phone contracts, Corporate America uses forced arbitration clauses to restrict Americans’ access to justice by stripping consumers and workers of their right to go to court. Instead, consumers and workers are forced into an arbitration system where corporations can write the rules; everything can be done in secret, without public rulings; discovery can be limited, making it hard for consumers to get the evidence they need to prove their case; and there’s no meaningful judicial review, so consumers and employees are often unable to appeal a decision even if the arbitrator gets it wrong. 

Senate and House Democrats will reintroduce and discuss legislation aimed at limiting forced arbitration in a wide variety contexts. And as the Senate Judiciary Committee prepares for its hearing on the nomination of Neil Gorsuch to the Supreme Court, Democrats will highlight the effects of mandatory arbitration on ordinary Americans’ access to the courts to hold powerful corporations accountable.  

FOR PLANNING PURPOSES ONLY:

 

WHO:            Senator Al Franken (D-Minn.)

                        Senator Patrick Leahy (D-Vt.)

                        Senator Dick Durbin (D-Ill.)

                        Senator Sheldon Whitehouse (D-R.I.)

                        Senator Richard Blumenthal (D-Conn.)

Congressman Hank Johnson (D-Ga.)

                        Congressman David Cicilline (D-R.I.)

Congressman Brad Sherman (D-Calif.)

Gretchen Carlson is a former Fox News anchor, whose Fox News employment contract would have barred her from speaking publicly about her allegations of sexual harassment against former Fox News chairman Roger Ailes.

Aaron Brodie is a victim of Wells Fargo’s illegal practice of establishing accounts without permission. Aaron is now suing Wells Fargo, and Wells Fargo is attempting to force him to submit to arbitration instead of being able to hold the bank accountable in court.

Kevin Ziober is a Navy reservist who was fired by his former employer in 2012 after he informed them that he would be deployed to Afghanistan. He filed suit when he returned under a federal law which forbids retaliation against deployed military service members, but his company forced his dispute into private arbitration. 

Edith Roberts at SCOTUS Blog on Judge Gorsuch's Arbitration Jurisprudence

Here.  (HT: Gregory Gauthier)

Consumerist: Wells Fargo Tries, Fails To Explain Why Customers Shouldn’t Be Allowed To Sue Over Fake Accounts

Here. 

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AmBanker: CFPB faces Catch-22 on pending arbitration rule

Here (behind paywall). Excerpt:

"* * * Director Cordray has been reluctant to issue a final arbitration rule, is because I think he realizes that there is a very high likelihood of it being overridden," said Alan Kaplinsky, a partner at the law firm Ballard Spahr. * * *

It's also not a guarantee that the arbitration rule would be rolled back if it is released. * * *

Lawmakers have also targeted other CFPB rules. Sen. David Perdue, R-Ga., is attempting to use the review act strategy to repeal a CFPB rule regulating prepaid cards. So far, however, Perdue has found little support for his efforts.

"We are not convinced anybody is really going to try and move that prepaid card CRA," [Lauren] Saunders at the National Consumer Law Center said. "Most of the prepaid card industry is just fine with the rule and getting ready to comply with it, and only one fringe issuer wants to save $80 million in overdraft fees. So I am not sure it is even going to come up for a vote, and we think we can get the votes to defeat it." * * *

"If the CFPB were to finalize an arbitration rule I would think we will witness a huge amount of industry pressure" to use the Congressional Review Act to repeal it, Kaplinsky said. "It is going to be nothing like whatever forces are being brought to bear to override the prepaid rule."

LA Times's David Lazarus: Republicans make killing consumer protections a top priority

Here.  Excerpt:

I asked [the] office [of Rep. John Ratcliffe, who has proposed to abolish the CFPB] to elaborate [on his claim that the CFPB hurts consumers]. I received a statement from Ratcliffe citing the group’s “qualified mortgage rule,” which he said “has made it harder for young people and retirees on fixed incomes to be able to purchase a home.”

He also cited “rules on prepaid cards and short-term lending products” — i.e., payday loans — and the agency’s “decision to expand class-action litigation in place of arbitration in consumer finance disputes.”

These are completely bogus complaints.

The qualified mortgage rule, also known as the ability-to-repay rule, requires that lenders do their homework to make sure a loan applicant can make regular payments. The idea is to avoid a repeat of the mortgage mess, in which banks handed money to pretty much anyone with a pulse and then passed off the crappy loans to unwary investors.

And the housing market is doing just fine, thanks. Mortgage applications for new homes were up 9.2% last month from a year before, according to the Mortgage Bankers Assn. Last year saw the largest number of existing homes sold — 5.45 million — since 2006, according to the National Assn. of Realtors.

* * * [The Bureau's] proposed rule for payday loans would require lenders to check if borrowers are creditworthy and make it harder for people to be trapped in endless cycles of debt.

The proposed rule for dispute settlement would block financial firms from using mandatory arbitration as a way to avoid class-action lawsuits. * * *

A 2007 study by Public Citizen found that over a four-year period, arbitrators ruled in favor of banks and credit card companies 94% of the time in disputes with California consumers. A 2015 Consumer Financial Protection Bureau study concluded that “class actions provide a more effective means for consumers to challenge problematic practices by these companies.”

CBS News: Samsung Trying to Block Class Actions for Exploding Phones by Invoking Arbitration Clause No One Noticed

Here. HT: Gregory Gauthier