By Pam Martens: August 23, 2012
A provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act required that the newly created Consumer Financial Protection Bureau (CFPB) study the use of forced arbitration contracts; not outlaw them, mind you, despite mountainous evidence that they have spawned corporate kangaroo courts; just study them. Read here and here for an in-depth look at the problem.
At the behest of Wall Street lobbyists, the same tactic was used in Dodd-Frank to deal with the so-called Volcker Rule to rein in abuses by Wall Street firms engaging in proprietary trading for the house – study the issue for years to give Wall Street a free pass to continue ripping the face off the investing public.
The CFPB has posted the comments it received on forced arbitration on their web site. Along with the usual corporate shills, like the U.S. Chamber of Commerce, there is sincere public testimony.
It was both bitter sweet and inspiring to see two familiar names among the commenters: the indefatigable Paul Bland of Public Justice and the good folks at Public Citizen. Bland, Public Citizen and myself were among the early battlers of Wall Street’s kangaroo courts. While it is inspiring to see Public Justice and Public Citizen still fighting for justice for the little guy, it is bitter sweet to realize that the majority of Congress has deserted this effort, choosing now to simply kick the can down the road and let someone else “study” the problem. Is it any wonder, as we reported yesterday, that the approval rating of Congress has hit the all-time low of 10 percent.
We’ve printed excerpts from a few of the comments below. As you peruse the comments, you will gain insight into how forced arbitration is just one more artifice in a mechanized wealth transfer system – Robin Hood in reverse, sucking wealth from the pockets of the little guy into the bank vaults of the one percent.
How do you fight back? Starve the corporations that impose forced arbitration of your consumer dollars. View Public Citizen’s list: Forced Arbitration Rogue’s Gallery
A sampling of excerpted comments submitted to the Consumer Financial Protection Bureau:
“I represent a lot of elderly consumers in elder financial abuse cases. I have numerous situations where arbitration is compelled because they signed an arbitration clause with a bank, agent or brokerage firm. They generally have no idea what they have signed and it is buried in the fine print. I can send you many complaints. These incidents of elder abuse should be litigated in a public place where other consumers can learn about the problems.” Ingrid Evans, The Evans Law Firm, San Francisco, CA
“Mandatory arbitration has deprived consumers of justice in our country. The presence of the ever-expanding scope of forcing people to arbitrate when they have been tricked or defrauded has damaged our economy more than any other factor. All businesses, from banks to car dealers, that impose arbitration clauses on their customers are then undeterred in their conduct and we suffer. Arbitrators are paid by the companies they sit in judgment of and they are ALWAYS more concerned about whether the company they are judging will select (and pay) them for the next case than justice for the consumer. Please end the scourge of mandatory arbitration.” – Dave Angle, Columbia, MO
“I represent consumers in class actions. I have been contacted by two different potential clients who have credit cards with one of the nation’s largest credit card issuers. One paid the car payment on his daughter’s car using his credit card from the potential defendant, while the other paid some closing costs for the refinancing on his house using the potential defendant’s credit card. The potential defendant treated both payments as cash advances, charged them cash advance fees, immediately started charging interest on the payments and started charging interest on the rest of their balances. Investigation revealed that this issuer has adopted a uniform policy of treating all charges from financial institutions as cash advances. Review of the cardmember agreements shows that cash advances are defined in accordance with the plain meaning of the term and not as any charge from a financial institution. So, this potential defendant is making millions of dollars from clear breaches of its contracts, which should be remedied by a class action. The cardmember agreements contain arbitration clauses with class bans, however. For that reason, I declined to initiate a class action on behalf of these clients. And, their claims were too small to justify individual arbitrations. This is a perfect example of why arbitration clauses in credit card agreements or, at least, class bans in arbitration clauses should be banned. They allow issuers to openly breach the contracts they drafted with impunity.” – Roger Mandel, Dallas, Texas
“In Public Justice’s experience, the most significant effect of mandatory arbitration clauses in consumer financial services is to dampen and suppress the bringing of claims by consumers. While the civil justice system brings injunctive relief (such as the end of deceptive and misleading practices, the elimination of improperly claimed debts, and the cleaning of credit reports, among other things) and monetary compensation to hundreds of thousands or millions of borrowers each year, only about 1,000 or so consumer cases against corporations of any kind were arbitrated in 2009 and 2010. For a variety of reasons set forth in these comments, the existing evidence that the use of arbitration by lenders suppresses claims – ensures that the vast majority of consumers who suffer legal wrongs will never even try to pursue their rights under federal and state consumer protection laws – is more than adequate for the Bureau to exercise its authority to ban the use of arbitration clauses by all entities within its jurisdiction. The broad data, as well as a number of potent evidentiary records in particular cases, confirms the obvious – that if consumers must each individually pursue their claims in arbitration, lenders will be immunized from liability for all but a tiny proportion of the legal wrongs they may commit.” – F. Paul Bland, Jr., Matthew Wessler, Leslie A. Bailey, Arthur H. Bryant, Amy Radon for the nonprofit organization, Public Justice.
“Among the problems consumer advocates identify concerning the use of mandatory arbitration agreements is the imbalance of power between the drafters of the agreements (i.e., the businesses offering the products and services) and the consumer. This imbalance is particularly acute when mandatory arbitration agreements are included in contracts of adhesion and in transactions targeted at the low-income population.” – Ron Elwood, Legal Services Advocacy Project, St. Paul, MN
“Our organizations strongly supported the Dodd-Frank Act provision requiring a study and authorizing rulemaking on forced arbitration. However, years of research and analysis by our organizations, academics, and others have already demonstrated how harmful forced arbitration is to the public interest. We urge the Bureau to complete an effective study as quickly as possible so that it can initiate rulemaking to address this issue.” — Alliance for Justice Citizen Works, Center for Justice and Democracy, Consumer Action, Consumer Federation of America, Consumers for Auto Reliability and Safety, Community Legal Services, Inc., Philadelphia, PA, Essential Information, The Leadership Conference on Civil and Human Rights, Homeowners Against Deficient Dwellings, Maryland Consumer Rights Coalition, National Association of Consumer Advocates, National Consumer Law Center, National Consumers League, Public Citizen, U.S. Public Interest Research Group (U.S. PIRG)
Read the full set of comments here.
