U.S. PIRG's Consumer Blog reports on this story from Money Talk News suggesting that mandatory consumer arbitration is on its way out. It notes, for instance, that the recently-enacted federal financial reform legislation empowers the new Consumer Financial Protection Bureau to limit or ban mandatory arbitration in contracts for consumer financial products and services. The Money Talk News story caught my eye because of the example it used to illustrate why mandatory consumer arbitration is unfair:
Just last week Wells Fargo was ordered to pay $200 million in connection with this class action suit that accused it of deliberately rearranging customer checks and account debits to maximize overdraft charges. What Wells Fargo was doing – and many banks still are doing – is clearing big checks first, which may reduce a checking account to zero, then clearing the smaller checks and debit charges made on the same day. Here’s how that would maximize their overdraft charges: Say you have $2,000 in your checking account. You use your debit card to make ten $10 purchases. Then you write a check to buy something that costs $2000. What should happen is the ten $10 purchases would clear, but the $2,000 check would bounce, resulting in a $30 bounced check fee. Common industry practice, however, is to re-order the debits: clear the $2,000 check first, leaving the account with a zero balance. Then bounce the ten $10 purchases, resulting in $300 of bounced check fees. Think that’s fair? It’s been going on for years. Would going to arbitration with Wells Fargo over $300 in fees have changed anything? No. Would hundreds of people banding together and costing Wells Fargo $200 million dollars change their behavior? Quite possibly. (In this specific case, however, not yet – Wells is appealing the judge’s ruling.)
by Richard Alderman
In an interesting case, the Third Circuit has upheld a $150,000 verdict against Trans Union for misidentifying a consumer as being included on an “OFAC (Office of Foreign Assets Control) Advisory” compiled by the Treasury Department. Trans Union argued that the advisory was not part of the consumer’s file, it was not subject to the Fair Credit Reporting Act, and that it did not violate the Act. In a 91-page opinion, the court affirmed the judgment, including $50,000 in compensatory damages and $100,000 in punitive damages, against Trans Union.
by Alan White
Mortgage servicers, including the big four banks, continue to perform poorly on their contracts with the US Treasury to modify loans and prevent foreclosure losses, much of the latter falling ultimately on taxpayers. A new survey by ProPublica provides further empirical evidence of the systematic breach of servicer participation agreements. For example respondents have been waiting an average of 14 months for a modification decision. Documents had to be submitted an average of six times before a servicer would acknowledge receiving them. It's time for Treasury to act.
by Jeff Sovern
At the risk of being a nag, I'm wondering when the President will nominate the new director of the CFPB. I have two fears. First, if the nominee cannot be confirmed before the new Congress takes over, and, as some predict, Republicans make significant gains in the election, a filibuster will be more likely to block the nominee, which could both prevent the President's first choice from serving in this key position and lead to additional delays as a second nominee is selected. Second, the longer it takes before the CFPB's head takes office, the longer it will be before the CFPB can get rolling. Confirmation proceedings can take an extended period even in non-election years. The CFPB will have a lot of things to look at in its early days, including arbitration clauses and revised disclosures under the Truth in Lending Act, and the sooner it can do that, the better. I have no idea how long vetting processes take, and it is a time when lots of people go on vacation, but I hope this is getting the attention it deserves. It's not as if there aren't good candidates.