By Grace Aylmer, Public Citizen
Too often, consumers are blocked by “rip-off clauses”, a fine-print trick that banks and predatory lenders use to evade accountability and conceal illegal behavior by prohibiting individuals and small businesses from having their day in court and forcing them into opaque arbitration proceedings. Under arbitration, the corporation gets to pick the arbiter who will hear the case. As such, arbitration inherently stacks the deck against consumers and small businesses and oftentimes serves as a get-out-of-jail-free card for rogue financial institutions, leaving consumers defrauded and without any other legal recourse.
The newly issued rule would restore consumers’ right to band together in class-action lawsuits against financial firms. Why is this so important? Consider the case of a bank that improperly charges millions of account holders a $50 fee. There are few people who will expend the time and energy necessary to litigate a $50 dispute on their own in arbitration. But this same $50 fee, improperly levied on millions of customers may generate hundreds of millions of dollars in revenue for the bank. Class actions allow consumers to band together and pursue their small dollar claims in court without having to invest time or money. By prohibiting class actions and requiring individual arbitration, rogue banks and other corporations essentially provide themselves with impunity to repeatedly abuse consumers. These giant corporations understand that without the possibility of suing in a class action, the vast majority of consumers will just eat the small fees they may improperly charge.
It should come as no surprise that the rule has the Chamber and its Wall Street friends on red-alert, given that it has the potential cost the industry billions. The Chamber has lobbied extensively against limits on the “rip-off clause,” hoping instead that corporations will be able to continue ripping off consumers with latitude, as we saw in last year’s Wells Fargo fake account scandal. The Wells Fargo case also illustrates another huge advantage of arbitration for corporations. Because arbitration takes place in secret rather than in open court, in the rare instances where a consumer arbitrates a dispute against a corporation, it helps the corporation prevent its alleged misconduct from becoming public, which might trigger investigations by prosecutors or regulatory agencies.
In a joint statement by Lisa Rickard, the president of the U.S. Chamber Institute for Legal Reform (ILR) and David Hirschmann, the president and CEO of the U.S. Chamber Center for Capital Markets Competitiveness, the Chamber asserts its view that the rule has a “complete disregard for the will of Congress, the administration, the American people, and even the courts” and that it ignores “the practical benefits of arbitration, as compared to the court system.”
Sure, the rule may go against the wishes of the current administration, one that is backed by corporate interests who stand to benefit from forced arbitration, but it most certainly does not “disregard” the American people, “or even the courts” for that matter. In fact, it aims to allow people to have their day in court! What the Chamber fails to mention in its scathing critique of the rule, is that more often than not, the “practical benefits” of arbitration fall only upon the big banks and other huge corporations, and not on everyday consumers and small businesses who are too often taken advantage of by corporations intent upon padding their bottom lines through questionable means.
In addition to the Chamber’s statement, the ILR’s Senior Vice President of Legal Reform Policy, Matt Webb, said in an NPR interview that the CFPB’s actions are “an example of an agency largely going rogue, doing the bidding of the plaintiffs’ trial bar and doing something that’s going to be harmful to consumers as well as the business community.”
It seems perplexing, even shocking, that the Chamber is feigning concern for consumers given its history of lobbying on behalf of nearly every industry, often at the expense of average Americans. The Chamber also seems to overlook the fact the CFPB spent three years compiling and analyzing data, resulting in the most comprehensive empirical study ever done on arbitration, requested by lawmakers, demonstrates that forced arbitration effectively wipes out consumer claims.
Not only is the Chamber lobbying against this rule, much like it has lobbied for legislation to restrict individual and small business access to the courts in the past, it also goes to court itself to argue that it should be more difficult for others to exercise this same fundamental right. In fact, the Chamber went to court to argue that others should be denied this same right over 100 times during a recent three year period. How’s that for hypocrisy?
What’s more, in recent years, the Chamber has involved itself in class action cases on behalf of BP, Goldman Sachs, Corinthian Colleges, and a boatload of other corporate bad actors. Should we still be taking their feigned concern over how this rule effects consumers seriously?
Now, the Chamber has vowed to do whatever it can to keep consumers from having their day in court, whether by suing the bureau once the arbitration rule becomes final or by lobbying Republicans to repeal the law using the Congressional Rule Act (CRA).
Let’s be clear about what the Chamber’s crusade in favor of “rip-off clauses” is really about: corporate impunity. The Chamber is once again seeking to make it harder for individuals and small businesses to use the civil justice system to hold corporations and financial institutions accountable for wrongdoing. Forced arbitration shields the Chamber’s Wall Street and big business allies from accountability for anti-consumer practices, thereby encouraging unsavory business practices by allowing violations to go unchecked. The Chamber has shown time and time again that it is neither the voice for small business or consumers, and its unflagging efforts to restrict access to the courts are par for the course. The Chamber may have claimed that the CFPB went rogue, but it and the big banks it represents are the real rogue actors in this story.