Forced Arbitration: Taking Away Your Rights and Your Money

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By Better Markets

Wall Street banks and corporations and their lobbyists, trade groups and political allies have been trying for years to take away the rights that consumers and investors have to recover money when they are ripped off by those banks and corporations.  They do this by prohibiting victimized customers from going to court and forcing them into secret, unfair and biased arbitration.

This is called “forced arbitration,” which always favors the banks and corporations and rarely if ever results in a win for consumers and investors, as we spell out in this fact sheet: “The Dirty Dozen – Why Mandatory Arbitration is Unfair.”

Companies are imposing their will and immunizing themselves in multiple ways and in multiple different arenas.  For example, JP Morgan Chase is the latest big bank to do this by amending their credit card agreements with their 47 million credit card holders.  As we explain here, they are trying to take away their customers rights to go to court and to force all 47 million of those credit card holders into arbitration.

Recently, corporations have been pressing the SEC to allow them to force arbitration on their investors and shareholders by including such provisions in their by-laws or charters.  So far, the SEC has rejected this effort, but industry’s allies are pushing for it relentlessly and one has even sued for a court order requiring the SEC to let corporations take away their shareholders’ rights.

They have also aggressively attacked agency rules that help protect consumers from forced arbitration.  For example, after the Obama administration’s Consumer Financial Protection Bureau (CFPB) issued a thoroughly-considered rule protecting the right of consumers to join with other victims of fraud and abuse in court, industry trade groups filed a lawsuit challenging the rule—hypocritically exercising the very right to go to court that they deny their customers.  Before the case was decided, the Trump administration mobilized against the rule for the benefit of its Wall Street and corporate patrons.  Congress ultimately killed it under the Congressional Review Act, an obscure but powerful law that enables Congress to overturn executive branch rules.

Better Markets has been fighting against the anti-consumer, anti-investor push for forced arbitration for years and, for those who want to know more about this issue, we’ve collected below many of the materials reflecting our work over the years.

Opposing forced shareholder arbitration.

  • “Better Markets & Public Citizen Letter to the SEC Regarding Forced Shareholder Arbitration,” March 16, 2018, available here – Calling upon the SEC to reject any proxy proposals that would allow publicly traded companies to force their shareholders into arbitration.
  • “Protecting Investors From Rip-Offs Must Be Priority for SEC,” March 16, 2018, available here –  Highlighting the joint letter from Better Markets and Public Citizen urging the SEC to reject efforts by companies planning IPOs to force arbitration upon their shareholders.
  •  “The SEC is Supposed to Protect Investors, Not Take Away Their Rights,” August 16, 2018, available here – Opposing SEC Commissioner Pierce’s view that public companies should be allowed to force arbitration on their shareholders.
  • “Joint Letter to SEC Chairman Jay Clayton on Forced Shareholder Arbitration,” January 16, 2019, available  here – Urging the SEC to reaffirm its long-held position that forced arbitration clauses depriving shareholders of their right to go to court are illegal under the federal securities laws.

Supporting the Consumer Financial Protection Bureau (“CFPB”) rule that would allow consumers to participate in class actions.

  • “Better Markets Comment Letter to the CFPB on Arbitration Agreements,” August 22, 2016, available here – Supporting the CFPB’s proposed rule that would protect consumers’ right to seek relief for fraud and abuse through class actions and require financial services firms to collect and report data on the consumer arbitration proceedings that will continue even after the Proposed Rule goes into effect.
  • “CFPB Stops Industry From Forcing Injured Consumers to Give Up Legal Rights,” August 22, 2016, available here – Highlighting Better Markets’ comment letter in support of CFPB’s rule proposal to limit forced arbitration clauses.
  • “CFPB Ends Special Protection for Financial Firms and Protects Consumers’ Right to Court,” July 10, 2017, available here – Praising the CFPB’s final rule limiting forced arbitration and allowing consumers to participate in class actions.
  • “Fact Sheet: Why the CFPB Consumer Protection Arbitration Rule is So Important,” July 25, 2017, available here – Fact sheet summarizing the need for CFPB’s rule limiting forced arbitration.
  • “The Fight for CFPB Arbitration Rule is About Ensuring Consumers Can Hold Big Banks Accountable,” September 26, 2017, available here — Presenting CFPB data showing that financial companies have a huge advantage over consumers in arbitration and that class-actions provide a much more effective and fair means for consumers to obtain relief.
  • “Forcing Ripped Off Consumers Into Secret, Biased, Unfair, Industry-Stacked Arbitration Proceedings is Wrong,” October 25, 2017, available here – Highlighting the harmful impact of Congress’s decision to throw out the CFPB’s rule limiting forced arbitration.
  • “Trump’s Gift to Wall Street,” December 23, 2017, available here – Highlighting Congress’s nullification of the CFPB’s arbitration rule that would have protected the right of injured consumers to seek remedies by joining in class actions.

Urging the SEC to strengthen its “Best Interest” rule for financial advisers by eliminating forced arbitration for violations of the rule.

  •  “Better Markets Comment Letter to the SEC on Duties of Brokers, Dealers, and Investment Advisers,” July 5, 2013, available here – Arguing that the true scope of harm caused by conflicts of interest is made more difficult to measure because wronged investors are discouraged from seeking recovery in arbitration, an often biased, fruitless and expensive forum.
  • “Better Markets Comment Letter to SEC on Regulation Best Interest,” August 7, 2018, available here – Arguing that the SEC should use the authority explicitly granted by Congress in the Dodd-Frank Act to ban forced arbitration clauses in its rule.

Supporting the Department of Labor (“DOL”) fiduciary duty rule, which protected investors’ right to participate in class actions for violations of the rule.

  • “Better Markets Comment Letter on the DOL’s Proposed Fiduciary Duty Rule,” July 21, 2015, available here – Supporting the provisions in the DOL’s proposed rule that protected investors’ right to participate in class actions and urging the DOL to go further and ban all forced arbitration clauses under the proposed rule, including those that prohibit individual lawsuits.
  • “Better Markets Statement Supporting the Department of Labor’s ‘Client’s Best Interest First’ Fiduciary Duty Rule,” July 23, 2015, available here — Announcing Better Markets’ support for the DOL’s fiduciary rule proposal and highlighting our comment letter arguing that the DOL should prohibit the use of forced arbitration clauses in contracts between advisers and investors.
  • “Better Markets Fact Sheet on DOL Comment Letter,” July 23, 2015, available here – Fact sheet summarizing Better Markets comment letter supporting the DOL’s fiduciary duty rule and arguing for a prohibition against the use of pre-dispute arbitration clauses.
  • “Statement of Better Markets in Support of the Department of Labor’s Proposed Conflicts of Interest Rule,” August 11, 2015, available here – Testimony supporting DOL’s fiduciary duty rule and arguing that the proposal can be strengthened by prohibiting the use of forced arbitration clauses in contracts between advisers and investors.
  • “Better Markets Comment Letter to DOL on Definition of the Term ‘Fiduciary’ – Proposed Delay on Applicability Date,” April 17, 2017, available here – Reviewing the many reasons why preserving the right of investors to participate in class actions would not overburden industry, as held by the United States District Court for the Northern District of Texas in Chamber  of Commerce v. Hugler, 231 F. Supp. 3d 152 (N.D. Tex. 2017).
  • “Better Markets Comment Letter to DOL on the Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions (Part 2),” August 7, 2017, available here – Arguing that protecting the right of investors to participate in class actions is a critically important element of the DOL rule, as it would ensure that groups of retirement savers harmed by widespread abuses committed by an adviser have a meaningful remedy for their losses in court.

Arguing that the biased arbitration system undermines transparency and consumer confidence.

  • “Submission to Senate Banking Committee in Response to Call for Proposals to Promote Economic Growth and Increase Market Participation,” April 15, 2017, available here – Arguing that to increase consumer confidence in the financial markets, policy-makers must either make arbitration more fair and effective or protect consumers’ right to seek relief in court when they are wronged.

Arguing against attempts to make recovery in arbitration even more difficult.

  • Brief Amicus Curiae, by Consent, of Better Markets, Inc. in Support of the Defendants-Appellants and Reversal,” filed on Apr. 19, 2019, in Interactive Brokers LLC v. Saroop (4th Cir.), available here – Arguing that investors in arbitration should be able to base their claims on violations of a wide variety of rules, including Self-Regulatory Organization rules, so they do not face even more technical obstacles in an already biased arbitration system.

Highlighting the harm that forced arbitration causes by concealing widespread misconduct, as in the Wells Fargo scandal.

  • “Brief Amicus Curiae of Better Markets, INC. In Support of The Appellee,” filed on Oct. 27, 2016, in United States of America v. HSBC Bank USA (2d Cir.), available here – Arguing for public access to a monitor’s report on a bank’s compliance with a deferred prosecution agreement and citing  arbitration as an obstacle to uncovering widespread fraud and abuse by Wells Fargo.
  • “Fact Sheet: Why the CFPB Consumer Protection Arbitration Rule is So Important,” July 25, 2017, available here – Fact sheet summarizing the need for CFPB’s rule limiting forced arbitration and highlighting the role that nonpublic arbitration proceedings play in concealing bank misconduct for years.
  • “The Fight for CFPB Arbitration Rule is About Ensuring Consumers Can Hold Big Banks Accountable,” September 26, 2017, available here – Presenting CFPB data showing that financial companies have a huge advantage over consumers in arbitration and that class-actions provide a much more effective and fair means for consumers to obtain relief; also highlighting secret nature of arbitration and its role in concealing patterns of misconduct from regulators.

Originally posted here.

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