Consumer Law & Policy Blog

AAJ: Forced Arbitration: How Corporations Use the Fine Print to Bully Americans

Here.  And here is the abstract:

Though few realize it, forced arbitration clauses are endemic in today’s marketplace — hidden in credit card agreements, bank accounts, corporate social media pages, even Starbucks gift cards. More than half a billion arbitration provisions infiltrate our everyday lives. Despite their prevalence, few consumers are aware of the forced arbitration clauses they are bound to, and fewer still realize they have been stripped of their constitutional rights.

Bloomberg BNA: Trump Presidency Creates Uncertainty for Arbitration Rules

Here. The entire article is worth reading, but I've pasted in an excerpt below.  (HT: Gregory Gauthier)

“Trump and his businesses seem to have been big proponents of arbitration, using it as a way of getting disputes out of courts and therefore out of the public eye,” defense attorney Liz Kramer told Bloomberg BNA. Kramer, of Stinson Leonard Street LLP in Minneapolis, writes for her firm's blog Arbitration Nation.

“Given his overall ‘change' message, and repeated criticism of all things Obama, my gut tells me his administration will roll back these regulations,” she said.

Defense attorney Alan S. Kaplinsky, who leads the consumer financial services group at Ballard Spahr in Philadelphia, agreed. The election could, in particular, “spell very bad news for the CFPB” and its regulatory efforts, including those aimed at limiting class action waivers in credit card agreements and other financial service products, he said.

“Proposed rules pertaining to arbitration and small dollar lending are in jeopardy,” he said.

* * *

Plaintiffs' attorney Deepak Gupta, a prominent opponent of arbitration, agreed that Trump's “mandate reflects a deep distrust of Wall Street and the financial system” and that might work in favor of consumers and workers.

“Nobody really thinks he was elected because his supporters think Wall Street should get a free pass,” said Gupta, the founding principal of Gupta Wessler PLLC, a Washington public interest law firm.

Man Spends $100,000 to Arbitrate $150 in Citibank Overdraft Fees

CBS MoneyWatch has the story here. (HT: Gregory Gauthier).  Excerpt:

While the arbitrator sided with Dempsey, the ruling proved to be something of a Pyrrhic victory. The decision awarded Dempsey more than $20,500 in actual and punitive damages, as well as $30,000 in attorney fees, or about one-third of Dempsey’s legal costs. Since Citibank has appealed the ruling, Dempsey is now preparing for another round.

 

Sebok Article: The Unwritten Federal Arbitration Act

Anthony J. Sebok of Cardozo has written The Unwritten Federal Arbitration Act, 65 DePaul Law Review (2016).  Here's the abstract:

Justice Scalia’s opinion in AT&T Mobility LLC v. Concepcion presented a new challenge to lawyers and scholars concerned with the unbridled growth of mandatory consumer arbitration. Not only did the decision continue to expand the scope of the Federal Arbitration Act’s preemption of state contract law, Scalia added insult to injury by arguing that by rendering the California contract doctrine in question void, the Court the court was promoting arbitration’s core mission of making it easier for Californians to resolve their disputes.

Unlike other articles that challenge the current Supreme Court’s understanding of the original intent of the FAA, or which challenge the validity of the preemption arguments as they relate to the degree of autonomy state contact law ought to have in the fact of arguments for FAA preemption, this article challenges the idea of preemption that Justice Scalia implicitly attributes to the FAA.

This article argues, first, that the concept of arbitration implicitly adopted by Justice Scalia is too thin to be attractive (or even coherent). That is, despite lip-service to the “core values of arbitration”, Scalia’s conception, essentially elevates the power to design an arbitral procedure over the goals of arbitration. Second, the article argues that, given that there is substantive content to arbitral procedures that cannot be waived by the parties, there is no reason why the states should not be allowed to experiment with various mechanisms designed to promote the core values of arbitration.

The article concludes by suggesting that the FAA cannot be read to preempt state law that is deigned to promote the core values of arbitration by prohibiting (for example) waivers of the right to representation, the right to have representation paid for by a collateral source, the right to assign a claim to a third party, and the right to have claims consolidated. 

Nothing in Debates on Consumer Law--or Banking: Sad!

by Jeff Sovern

Some reactions from Politico's Morning Money:

TOP EMAIL from Richard Hunt, President & CEO of the Consumer Bankers Association: “Four debates and no Wall Street or bank bashing. Didn't see that coming.”

* * *

Cowen’s Jaret Seiberg: “Sec. Hillary Clinton and Donald Trump have now faced off in three presidential debates without a material discussion of banks or housing. This tells us that Congress will likely shape banking policy with either Sen. Elizabeth Warren or Rep. Jeb Hensarling taking lead depending on the winner.

“For housing, we see both candidates as a positive though Trump may be better for Fannie and Freddie. … To us, the most important takeaway from the three debates is that neither Clinton nor Trump have emphasized any policies for banks or for housing. It is just not at the top of their agendas. That means there is not an election mandate to address either issue.”

Personally, I'm skeptical about the mandate idea.  The new president will pursue his or her agenda, and the members of Congress will pursue theirs. I doubt many participants will change their behavior based on a perceived mandate--which is not to say that they won't claim a mandate to accomplish their goals.  But the candidates have voiced policies in the area, though not in the debates.  For example, Clinton has applauded the CFPB and its proposed arbitration rule, while Trump has criticized Dodd-Frank, though without being very specific about which parts of Dodd-Frank he would repeal.

Consumer Clinical Law Professors Comment on CFPB's Arbitration Rule

by Jeff Sovern

I meant to post this a long time ago, but then I got caught up teaching an intensive class, followed by an overload and didn't get to it. Anyway, here is a comment on the CFPB's proposed arbitration rule posted by law professors teaching consumer law clinics (we had previously covered a law professor letter that included doctrinal professors).  The letter reports on the experiences of the clinical professors representing clients and how arbitration clauses interfered with their attempts to obtain justice. Two examples of what they say, but they give others:

One of our clinics represented a Hispanic woman who was solicited at her home by a sales representative of a utility-finance company. The sales representative told her she could get utility service for a reduced rate because of her age and her disability. The conversation occurred entirely in Spanish because she does not speak English. The salesman stated he was from the local power company, which was not true. The consumer signed a utility-finance contract – which was entirely in English, in violation of state law – that cost her significantly more every month. The consumer, as is often the case, was upset and ashamed that she had somehow fallen for this bait-and-switch, and then outraged when she learned that many of her neighbors also had fallen victim. She wants to bring a class action on behalf of herself and her neighbors to get out of a contract she did not understand (and could not have understood) and to make sure that the company does not take advantage of other people in her situation. But the contract contains an arbitration clause banning class actions and class arbitrations. Even if her individual case goes forward, the deceptive and abusive practices likely will continue and more vulnerable consumers will become victims every day.

* * *

One of our clients is a single father living in California who immigrated to the United States. His dream is to become a nurse. He heard about a nursing program that he could complete and called to find out more. The salesperson told him that he could earn a nursing degree online that would qualify him for a nursing license in California and that he could transfer his educational credits from abroad to help fulfill the prerequisites for a nursing degree. He took out a private student loan from a credit union chosen by the online school and signed all of the paperwork for the loan and the program at the same time. He later learned that his credits were not eligible for transfer and that he the online degree would not allow him to obtain a nursing license. He ended up paying over $7,000 and spending countless hours taking classes online that did not actually lead to a degree, leaving him with a debt to the credit union for his private loan. Only after contacting our program for help did he realize that his contract with the school included a mandatory arbitration clause. The online school’s mandatory arbitration including the following blatantly unfair provisions: the arbitration must take place in Indiana, the school gets to choose the arbitrator, the client cannot have an attorney, and the client must pay $250 for the arbitration (much more than small claims court), and that the client must compensate TNC for attorney’s fees and costs if it prevails. This arbitration clause presents a significant obstacle to the client getting any kind of relief after being victimized by a scam.

Wells Fargo Debacle Increases Visibility of Arbitration Clauses in National Politics

Hillary Clinton gave a speech today in which she hit Wells Fargo's use of arbitration clauses, among other things.  Some excerpts:

[T]he Wells Fargo scandal shed light on another threat to consumers that we have to address. When the scams victims, people like you and me who had accounts there tried to sue, they were shocked to learn there was a provision in the very fine print of their contracts that kept them from going to court to sue the bank for being cheated. Instead, they are forced into a closed-door arbitration process without the important protections that you get in a court of law.

We are not going to let corporations like Wells Fargo use these fine-print gotchas to escape accountability.

 

And in fact, this is now common practice across a lot of industries, from nursing homes — nursing homes that mistreat seniors, to for-profit colleges that defraud students. You know, who reads all that fine print? I don’t. And you get defrauded or you get mistreated and then all the sudden they, well you can’t sue us. So we’re going to rein in that abuse across everybody.

More on the speech from USA Today and Reuters. Text here.  (nice to see another prominent official admit to not reading fine print). Meanwhile, Senator Sherrod Brown, ranking member of the Senate Banking Committee, plans to introduce a bill that would enable consumers for whom Wells opened unauthorized accounts to sue in court, notwithstanding arbitration clauses. More on that from The Hill

CNBC Nightly Business Report Segment on Arbitration

Here, about 7:30 in, starring the blog's own Brian Wolfman

Media Reports on How Wells Fargo's Arbitration Clauses Might Block Consumers from Obtaining Compensation

Here is the Consumer Reports story.  Excerpt:

If a bank employee opens fake accounts and credit cards in your name, as recently happened at Wells Fargo, you may be charged fees for those fake accounts, which you didn't pay because you didn't know the accounts existed. And since you didn't pay those fees, your credit report and your credit score could be hurt. 

And there may not be a whole lot you can do about it.

That's the problem now facing many Wells Fargo customers. Over the course of five years, Wells Fargo employees opened as many as 2 million fake accounts in the names of Wells Fargo customers and made millions in profits for the company by charging customers overdraft fees, monthly service fees, annual fees, finance charges, interest charges, and late fees on those phony accounts. 

But customers lose their right to a trial in court over the creation of those phony accounts and the damage done to their credit if a pre-dispute mandatory arbitration clause was included in their customer agreement.  

Wells may end up being the poster child for the CFPB's arbitration rule. WaPo weighs in with an article headlined Why Wells Fargo customers won’t be able to sue the bank over fake accounts.  An excerpt:

One major group directly affected by the Wells Fargo scandal — the customers who had fraudulent accounts opened in their names — may have their hands tied.

As lawmakers pointed out at congressional hearings Thursday and last week, many Wells Fargo customers are blocked from suing the company because of arbitration clauses, little-known contracts that often ban customers from taking part in class action lawsuits. They are regularly included in the fine print for checking accounts, credit cards and other consumer products. 

In the case of Wells Fargo, the arbitration clauses that customers agreed to when they opened their real accounts are being used to keep them from suing about the fake accounts opened in their names.

In a terse exchange during Thursday’s hearing, Rep. Brad Sherman (D.-Calif.) pushed John Stumpf, the chief executive, on whether the bank would waive the clause for affected customers.

Stumpf defended the arbitration process, calling it “fair” and saying that consumers would be directed to mediators.

But Sherman asked the executive to be more direct about whether customers have the ability to challenge the company in court.

“If they want to go to court are you going to let them go to court? Yes or no?” Sherman asked.

“No, but …” Stumpf responded before being interrupted by Sherman, who said he understood that the answer was no.

Debate Moderators: Don't Forget About Consumer Protection

by Jeff Sovern

The country faces many issues which merit attention during the debates. Among them is consumer protection.  Failures of consumer law contributed to 2008's Great Recession.  Consumer protection is regularly in the headlines (just ask Wells Fargo or Volkswagen).  The choice of the next president is likely to have a huge impact on consumer protection.  One party generally supports the CFPB, its proposed arbitration rule, and a variety of other consumer protections; the other party wants to limit regulation in general and the CFPB in particular.  I very much hope one or more moderators asks about consumer protection.  If a moderator wanted to ask about the candidates' views of regulation, the moderator could make the question more concrete by asking whether the CFPB has been a positive force by, for example, fining Wells Fargo and returning billions to consumers, or if it should be limited or restrained, and how.