This week, with Vice President Mike Pence casting the tie-breaking vote, the U.S. Senate axed a rule designed to ensure consumers would be able to effectively seek justice through the courts and hold financial institutions accountable for wrongdoing.
The rule was created by the Consumer Financial Protection Bureau (CFPB), a government agency created after the 2008 financial crisis to protect consumers. Announced earlier this summer and slated to take effect in 2019, the rule would have restored the right of American consumers to band together in class-action lawsuits.
The U.S. House of Representatives voted to roll back the rule earlier in its term and President Donald Trump has vowed to sign the measure immediately, National Public Radio reported.
The roll back of this rule is a loss to consumers and demonstrates the effectiveness of the financial industry’s corporate lobbyists in sidestepping the 7th Amendment rights of the average American. As the Treasurer for the American Association for Justice (AAJ), which works to preserve the constitutional right to trial by jury and make sure people have a fair chance to receive justice through the legal system, I am proud that our organization will continue fighting such corporate interests.
The rule, which AAJ was instrumental in helping develop, banned mandatory arbitration clauses that are typically included in the fine print and buried deep within credit card and checking account agreements. It also was in response to a CFPB study published in May 2016 that showed how exempting banks and other financial institutions from the normal legal system has had far-reaching and extremely harmful consequences for consumers.
The study, spanning 400 class-action lawsuits and several years, provides documented proof that predatory lending, deceptive schemes, and blatant fraud have trapped millions of consumers in insurmountable debt, forced them into bankruptcy, foreclosed on their homes, and repossessed their cars.
Specifically, arbitration clauses force consumers to give up or take on powerful, giant financial institutions alone.
For a sterling example of the harm arbitration clauses can cause consumers, one need not look much further than the Wells Fargo fake account scam, as Beasley Allen has previously described. The San Francisco-based banking giant defrauded millions of its customers when it opened checking, savings, and credit card accounts in their name and without their authorization, then charged them fees for those bogus accounts.
Customers tried to stop these fraudulent practices and get reimbursements for the fake accounts by filing class actions against the bank in 2014 and again in 2015, The Hill explained. But both times Wells Fargo lawyers successfully cited the arbitration clauses in its customer agreements and locked the plaintiffs out of court, all the while claiming that “the use of arbitration is a fair and efficient process that serves the needs of both parties.”
Not only did Wells Fargo use arbitration clauses to bar its customers from justice, it used the clauses to hide its activities from the public eye and perpetuate a number of other alleged schemes that defrauded homeowners, car buyers, veterans and taxpayers. It is also flagrantly deceitful of the financial industry.
The industry has fought to end consumers’ rights all while protecting its own rights allowing individual banks and financial institutions to participate in class action lawsuits. In fact, as Beasley Allen has previously discussed, a group of banks filed a class-action lawsuit seeking compensation for losses they experienced due to the Home Depot data breach in 2014.
The industry knows that class-action lawsuits are far more effective at obtaining justice through the civil justice process than arbitration. The CFPB study confirmed that group lawsuits get more money back to more people.
In a New York Times commentary, CFPB head Richard Cordray explained that over the five years of data collected from group lawsuits, the agency “tallied an average of $220 million paid to 6.8 million consumers per year.” However, data for arbitration claims during the same time period “showed on average, 16 people per year recovered less than $100,000 total.”
Cordray further explained that “When a bank charges illegal fees to millions of customers and then blocks them from suing together, a result is not millions of individual claims, but zero. So, the bank gets to pocket millions in ill-gotten gains.”
Now, without the protection of the CFPB’s rule, bad corporate behavior within the financial industry will continue to go unchecked.
* * *
In addition to his leadership as an officer of AAJ, Navan Ward is a Principal with the Beasley Allen Law Firm and is responsible for opening our Atlanta office. He also handles Pharmaceutical Drug/Device and Product Liability claims. You may contact him by calling the firm at 800-898-2034 or email him directly at email@example.com.
Consumer Financial Protection Bureau
National Public Radio
New York Times