This week the Consumer Financial Protection Bureau decided to ban most types of mandatory arbitration clauses, which require credit card or bank customers to use a mediator when they have a dispute—often giving up their right to sue in court.
Respondents to this week’s Rochester Business Journal Snap Poll strongly support the decision to ban the clauses by a more than 2-to-1 margin.
Consumers could band together to sue their banks or credit card companies under a federal rule issued Monday that is likely to face resistance from congressional Republicans and the White House, AP reported.
Mandatory arbitration clauses are found in the fine print of tens of millions of financial products, from credit cards to checking accounts. Because consumers generally do not carefully read the fine print on the agreements for their checking accounts and credit cards, they are often unaware they are subject to arbitration.
Consumer advocates have been pushing for years for stricter federal regulation of these types of clauses, contending the clauses are a way for banks and other financial companies to sidestep the legal system.
Banks have strongly opposed banning arbitration clauses, arguing arbitration is a more efficient way of handling small disputes and that class-action lawsuits largely benefit the lawyers handling the cases. There is also a bottom line impact: banks could be exposed to billions of dollars in lawsuits from customers.
The CFPB’s rules are not a total ban on arbitration clauses. Financial companies still will be able to force individuals to settle disputes through arbitration, but those kinds of cases are far less common than class-action cases. The ban also will not apply to existing contracts.
The move by the CFPB — a high-profile independent agency created under President Barack Obama — is likely to face pushback from the banking industry and the Republican-controlled Congress.
Nearly 300 participated in this week’s poll conducted on July 11 and 12.
Do you support or oppose the Consumer Financial Protection Bureau decision to ban most types of mandatory arbitration clauses?
Unfortunately, what at first glance seems like a gain for consumers might end up not being. Certainly, if mandatory arbitration clauses are banned, the banks will face greater risk of lawsuit losses. But what does that really mean? Will the banks’ employees’ salaries be at risk? No, the brunt of the increased class-action lawsuits will be borne by shareholders. If this passes, look for bank stocks’ value to fall. Sadly, the primary beneficiaries of this ban are mostly the class-action law firms, not the individuals they end up representing who see only a small fraction of any settlement (perhaps no more than they might have under arbitration).
—Maggie Symington, Rochester
Here is the Seventh Amendment. “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, than according to the rules of the common law.” (Commentaries show this is regarded) as one of the more clearly written amendments to the Constitution. I cannot understand how this amendment can be abrogated by any organization. Presently virtually all financial institutions and many other organizations with which one virtually must conduct business has a clause in their contract to require people to forfeit their rights. How would we feel if we were required to forfeit our rights under the Second Amendment in order to open a bank account, buy stock, or take out a car loan? It’s about time the CFPB issued a rule requiring the Seventh Amendment be followed.
—David Rubin, retired
According to recent polling by Pew Charitable Trusts, banning these mandatory arbitration clauses is supported by nearly 80 percent of the people they asked, regardless of political party. This is clearly not a left-right issue, but a bottom versus top issue. It must be noted these are NOT neutral arbitrators, but are hired and paid by the financial industry. However this may not be a done deal. I for one will not be surprised if the president now fires the head of the Consumer Financial Protection Bureau.
—Jim Bertolone, retired
Arbitration is a way to resolve disputes without clogging up the courts and incurring the related costs. Class-action lawsuits only create bonanzas for lawyers. The related costs are passed on to us as consumers. Perhaps a review of arbitrators’ ethics and standards, such as the case for CPAs, PEs, etc., would be a wiser undertaking to ensure that the arbitration system is fair, both in fact and in public perception.
Often class action suits are the only way to end small abuses. If a big cellphone or cable /internet provider overcharged each customer $1 each month, they might get as much as $75,000,000 per month, while customers would be powerless to get their buck back and even more importantly to stop the abuse. Who cares if the attorneys make millions? At least they get me something, if only revenge. Besides, they did the work, shouldn’t they be compensated?
The CFPB has no credibility with me. When the federal hiring freeze hit earlier this year while my daughter was in D.C. to interview with them and a couple of other federal agencies, they canceled her interview and refused to pay for her plane ticket home. They sure didn’t provide her with any financial protection!
—Karen Zilora, president, Creative Scanning Solutions Inc.
Acceptance of arbitration should be a voluntary, case by case decision, based on negotiation. I think most informed consumers would accept arbitration for most minor issues, generally because class-action suits typically provide very little relief for the consumer, with hefty fees for the attorneys. Of course, if the banks treated consumers fairly, there would be no need for class-action law suits.
The big banks have too much clout already and have unwisely been given subsidies by feds via Too Big to Fail. So when they do wrong stuff, like any other business, they ought (to) be able to be sued.
—Dave Giambattista, Fairport
Anything the CFPB does is bad. They are an unaccountable federal agency with too much power.
The CFPB is supposed to protect the interests of consumers. Here, it proposes to protect the interest of trial lawyers. Class actions of this sort rarely result in a big payout for individual plaintiffs. But, the lawyers get a big payday. Arbitration, on the other hand, is a way of getting to a decision more quickly with less expense. I know the CFPB is supposed to watch the banks. But, who is watching the CFPB?
—John Calia, Fairport
It’s frequently necessary to challenge a hospital or nursing home, and that’s what courts are for.
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