Consumer Law & Policy Blog

Another Conservative Strongly Supports CFPB Arb Rule

Chuck Muth has written If Congress Won’t Protect Us from Wells Fargo, then at Least Get Out of the Way. Here's an excerpt:

Now, as a conservative I fully support the right of private individuals to freely and voluntarily contract with each other * * *

But to require someone to sign away a CONSTITUTIONAL RIGHT (now I’m shouting!) for the privilege of opening a checking account or obtaining a Visa card is obscene.  Especially when your rights are taken away from you by a fine-print clause in a 7,927-word (yes, I counted them for you) “adhesion contract.”

* * *

Unfortunately, Congress – in the pockets of the Big Bank swamp monster – has chosen to go AWOL on this issue.  Which has left a vacuum that the despised (rightfully so) Consumer Financial Protection Bureau (CFPB) has stepped in to fill.

* * * I don’t like the CFPB.  I think Congress should eliminate it.  * * * And like the proverbial broken clock that gets it right twice a day, CFPB has gotten it right on this issue. * * *

I detest abuses of class action lawsuits.  With a passion.  I’ve championed lawsuit abuse reform legislation for two decades.

But class action lawsuits do have a rightful and legitimate place in American jurisprudence in some cases – like when a giant national bank like Wells Fargo fraudulently opens an estimated 1.5 MILLION fake checking accounts and issues an estimated 565,000 fake credit cards to customers without their knowledge or permission.

No Wonder Bankers Oppose the CFPB; FT: Bankers’ pay closely tied to deregulation

Here.  The graph in the article is mind-boggling.

 

WSJ: GOP Effort to Overturn Arbitration Rule at Risk From Republican Defectors

Here.  Excerpt:

[S]upport [to overturn the rule] in the Senate is uncertain. No Democrats are likely to back the effort, and Republicans, with their slim majority, can’t afford to lose more than two GOP votes. Several Republican senators have expressed reservations about voting to overturn the regulation, worried they may be portrayed as siding with banks and against consumers.Analysts with Compass Point Research & Trading LLC and Keefe, Bruyette & Woods have put the odds of the rule remaining in place at over 50%.

Sen. Lindsey Graham (R., S.C.) in an interview said he opposed the resolution, saying arbitration is “a windfall for the companies in terms of how you settle their cheating.”

“You’ve had banks and credit-card companies nickel-and-diming consumers, and one of the things that makes them think twice is the idea of a massive lawsuit,” Mr. Graham said. “Nobody is going to get a lawyer over a $10 overcharge, but when you overcharge millions of people $10, the bank or the credit-card company makes out like a bandit” in arbitration.

Other Republicans, including Sens. Susan Collins of Maine, Lisa Murkowski of Alaska and John Kennedy of Louisiana, have said they are undecided. And Sen. John McCain (R., Ariz.) may be unavailable to vote as he undergoes treatment for brain cancer.

Jean Sternlight Article: Consumer Arbitration as a Poster Child for Regulation

Jean R. Sternlight of the University of Nevada, Las Vegas has written Hurrah for the Consumer Financial Protection Bureau: Consumer Arbitration As a Poster Child for Regulation, 48 St. Mary's Law Journal 343 (2016).  Here is the abstract:

Drawing on economic, psychological and philosophical considerations, this Essay considers whether consumers should be "free" to "agree" to contractually trade their opportunity to litigate in a class action for the opportunity to bring an arbitration claim against a company. The Essay suggests that by looking at the CFPB's regulation through these three lenses, one sees that the regulation is desirable—even a poster child—for the potential value of regulation when market forces are not sufficient to protect individual or public interests.

Some Think Draining the Swamp Means Reducing Consumer Protection

by Jeff Sovern

According to Politico, President Trump first used the phrase "drain the swamp" in a speech on October 17, 2016, in which he announced an ethics plan to, in fact, drain the swamp. Here's the Washington Post's quote of what he said draining the swamp meant:

First: I am going to re-institute a 5-year ban on all executive branch officials lobbying the government for 5 years after they leave government service. I am going to ask Congress to pass this ban into law so that it cannot be lifted by executive order. Second: I am going to ask Congress to institute its own 5-year ban on lobbying by former members of Congress and their staffs.Third: I am going to expand the definition of lobbyist so we close all the loopholes that former government officials use by labeling themselves consultants and advisors when we all know they are lobbyists. Fourth: I am going to issue a lifetime ban against senior executive branch officials lobbying on behalf of a foreign government. Fifth: I am going to ask Congress to pass a campaign finance reform that prevents registered foreign lobbyists from raising money in American elections.

After reading that, you might think that draining the swamp would be good for consumer protection because according to OpenSecrets.org, in 2016, the Finance, Insurance & Real Estate Industries ranked second in lobbying spending at 486,122,908 (I subtracted the money spent by accountants, who are for some reason included in the total), and reported 2,078 lobbyists (again, dropping the accountants), or nearly four for every member of Congress. Spending last year worked out to more than $900,000 per member of Congress, or more than $1.3 million per day.  But some seem to think the president meant something else when he spoke about draining the swamp. For example, House Financial Services Committee Chair Jeb Hensarling refers to the CFPB as a "bureaucratic swamp," while the Wall Street Journal just published an essay titled Before You Leave The Swamp... about holding CFPB Director Richard Cordray in contempt. 

(By the way, for those wondering, OpenSecrets.org lists lobbying spending for lawyers and law firms as 14,863,270 (about 3% of the number for the finance et al. industry) and the number of their lobbyists as 188 (about 9% of the number for the finance, et al lobbyists). Some of the contributors include entities unlikely to oppose predispute arbitration, such as large law firms that represent financial institutions, but maybe that's fair as the finance et al, industry  lobbies for many things that don't affect people in their role as consumers.

The Hill: 3 big lies bank lobbyists peddle to protect corporate scoundrels

Here.  Excerpt:

Big Lie No. 1: Bank lobbyists claim that people recover more in arbitration than in class actions: $32 per person in class actions versus $5,400 per person in arbitration, citing the CFPB’s study. 

* * *

The very few people who take the time and expense to pursue an individual arbitration — only 16 people a year on average in the entire country got those $5,400 “average” arbitration awards — had quite large claims, averaging $27,000. The CFPB’s study found that, nationwide, only 25 people file arbitrations each year seeking less than $1,000. 

But several million people each year get relief in class actions, which are an efficient way of resolving smaller claims by many people. For example, Kaylee Heffelfinger, one of the lead plaintiffs in the class action against Wells Fargo, alleged $210 in unauthorized fees. Her claim did not make sense to pursue by herself. 

* * *

Big Lie No. 2: Class actions only benefit the attorneys.

The CFPB studied 419 consumer financial class actions and found $2.7 billion in relief for consumers, with only 18 percent of that going to attorneys. That is, $2.2 billion went to consumers.

Morning Consult: Prospects Dim for Senate Vote on CFPB Arbitration Rule This Month

Here. Excerpt:

A Senate GOP aide said that supporters of the resolution do not have the votes needed to proceed on the floor, given the absence of Sen. John McCain (R-Ariz.), who has returned to Arizona to receive medical treatment for brain cancer.

A July 28 statement from McCain’s office said he does not plan to return to Washington until Sept. 5, when the rest of the Senate is scheduled to reconvene after its August recess.

* * *

Some GOP senators are either undecided or opposed to the resolution, according to Tuesday interviews with the lawmakers. Sen. Lindsey Graham (S.C.) said he would not vote in favor of the resolution if it were brought before the Senate today.

* * *

Sen. John Kennedy (R-La.), who last week said he was undecided because of his focus on health care legislation, told Morning Consult he hasn’t decided on whether he would support the resolution, and Sen. Susan Collins of Maine said she is also still undecided  * * *

Poll: Consumers Overwhelmingly Think Their Bank, Credit Card Issuers Treat Them Better Than 10 Years Ago. What's Changed? Hint: CFPB

by Jeff Sovern

Results from WalletHub. Some other findings:

More than half think banks and credit bureaus need more regulation while 71% think consumers need more financial protection

92% know CFPB stands for Consumer Financial Protection Bureau and 49% would turn to the CFPB if they had a serious complaint about a bank, compared to 9% for the FTC.

Four in every ten think Republicans want to cut the Bureau's funding to get favors from bank lobbyists. Nine in ten would rather cut a different agency's funding.

 

Economic Policy Institute Study: Correcting the record: Consumers fare better under class actions than arbitration

by Jeff Sovern

Here.   My favorite sentence points out that in an average year, "[a]t least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data." Here is a longer excerpt:

Opponents of the rule have suggested that the bureau’s own findings show consumers on average receive greater relief in arbitration ($5,389) than class action lawsuits ($32). This is enormously misleading.

In arbitration, the average consumer is ordered to pay $7,725 to the bank or lender.

While the average consumer who wins a claim in arbitration recovers $5,389, this is not even close to a typical consumer outcome. Why? Consumers obtain relief regarding their claims in only 9 percent of disputes. On the other hand, when companies make claims or counterclaims, arbitrators grant them relief 93 percent of the time—meaning they order the consumer to pay. If you consider both sides of this equation, in arbitration, the average consumer is ordered to pay $7,725 to the bank or lender. That’s right: the average consumer ends up paying financial institutions in arbitration.

But let’s consider the consumers who do win in arbitration. How do those numbers stack up against class action lawsuits? In an average year:

• At least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data.
• Consumers recover at least $440,000,000 in class actions, after deducting all attorneys’ fees and court costs—compared with a total of $86,216 in arbitration. 

Is It Just Me, Or Is Hensarling Getting Even Nastier to Cordray?

by Jeff Sovern

The Hill reports that Hensarling has demanded an investigation into whether Cordray violated election law.  This follows the Financial Services Committee (chaired by Hensarling) staff report saying the Committee should consider holding Cordray in contempt (a story on the CFPB reply is here). And if you listen to the Committee's hearings during which Cordray testifies, the meanness is inescapable. Not how government is supposed to work.