Senate spits at consumers; ending ban on lawsuit fine print a gift to banks

While you were busy worrying about health insurance premiums and perhaps Donald Trump’s latest Tweet, the U.S. Senate spat in the face of American consumers this week.  In a 50-50 vote that required Vice President Mike Pence to break the tie, the Senate voted to nullify a pro-consumer rule that was more than a decade in a making. The rule was simple: it banned banks from sneaking language in common consumer contracts that forbid customers from joining together to sue them for misbehavior.

It’s an abominable decision that clearly picks banks and Wall Street over people. The drain-the-swamp president is set to affirm it.

If you look hard enough, you will find the Wall Street rhetoric used to defend the decision.  These arguments always go something like this: Don’t hurt banks, because if you hurt banks, you hurt people. I hope you aren’t falling for that.

I’ve been writing about mandatory arbitration clauses in standard-form contracts — also known as contracts of adhesion — for more than a decade.  They were invented by lawyers who do what lawyers do: Try to claim as much legal turf as they can, and see what they can get away with.  That’s all this is.

Bank lawyer 1: “How about we make it so people can’t really sue us, no matter what we do?”

Bank lawyer 2: “We’ll never get away with it!”

Bank lawyer 3: “Well, let’s see how gullible people are.”

Let’s get this straight: No consumer can sue a bank over a few dozen unfair fees. Not going to happen. You have to let people band together when the cheating is small. That’s the only way to get justice. That’s what class action lawsuits are for.

Here’s all you need to know about arbitration clauses that ban class action cases. When several consumers tried to band together and sue Wells Fargo over fake account creation, those cases were thrown out of court because of the arbitration clause.  Wells Fargo was able to commit outright fraud against its consumers, and enjoyed effective immunity from legal action by the victims.

That’s insane.

The other tired argument you’ll hear from supporters of the Senate vote….wait, time out….I’m quite certain there isn’t a soul alive who actually supported the rulemaking. It’s perfectly loopy.  Folks voted for it because they had to for some dark reason…but anyway, time in….the other reason senators gave for this week’s vote was this:

Consumers actually fare better in arbitration than in class action cases.

That’s a vile lie using an incredible distortion of the numbers, one so misleading you wonder how folks sleep at night.  The Economic Policy Institute dispenses with that lie here.

In recent weeks, members of Congress have introduced legislation to repeal the CFPB rule and take away consumers’ newly restored right to band together in court. Opponents of the rule have suggested that the bureau’s own findings show consumers on average receive greater relief in arbitration ($5,389) than class action lawsuits ($32). This is enormously misleading.

While the average consumer who wins a claim in arbitration recovers $5,389, this is not even close to a typical consumer outcome. Why? Consumers obtain relief regarding their claims in only 9 percent of disputes. On the other hand, when companies make claims or counterclaims, arbitrators grant them relief 93 percent of the time—meaning they order the consumer to pay. If you consider both sides of this equation, in arbitration, the average consumer is ordered to pay $7,725 to the bank or lender. That’s right: the average consumer ends up paying financial institutions in arbitration.

But let’s consider the consumers who do win in arbitration. How do those numbers stack up against class action lawsuits? In an average year, at least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data.  Consumers recover at least $440,000,000 in class actions, after deducting all attorneys’ fees and court costs—compared with a total of $86,216 in arbitration.

Banning consumer class actions lets financial institutions keep hundreds of millions of dollars that would otherwise go back to harmed consumers every year.

Yes, it’s quite certain, class action lawsuits are imperfect. Anyone who’s received a 17-cent check as a “settlement” knows that. I’m all for fixing that broken system.  But granting banks like Wells Fargo a free and PERMANENT get-out-of-jail-free card for any misbehavior they undertake is deeply un-American.

And for those of you clinging to the idea that the new administration is based in populism — that somehow Donald Trump feels your pain, knows you’ve been ripped off in life and he’s on your side, well, I’d hope this is the last straw.  Republicans have reinstated the RipOffClause. It’s no more complicated than that.

Class action bans were snuck into our contracts under cover of fine print, slowly, over the course of years, like a virus. They favor the companies that write the contracts, period. Of course they do. Seeing the obvious benefit, corporate lawyers copied and pasted each other’s language until courtroom bans had essentially become the law of the land. It took years for lawyers and legislators around the country to figure out what was going on, and more than a decade of campaigning to simply return this situation back to normal. With a single vote, Vice President Mike Pence has eliminated all that good work and set consumer rights back a decade or more. Given the strength of bank and Wall Street lobbying, it might take another 10 years to fix this. Well, we’d better get started.

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About Bob Sullivan 1443 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

1 Comment

  1. The U.S. Constitution and Bill of Rights apply to everyone, and are the laws
    of the land, for government, individuals AND corporations. Federal Arbitration
    Act was meant to be applied to international shipments of goods, so disputes
    can be resolved more easily in case of loss during transit in international
    waters and airspaces. S2591-Arbitration Fairness Act of 2018 was supposed to
    address and make unlawful mandatory binding arbitration in consumer purchases
    of goods and services, and would have gone quite far in fixing this.

    Very soon, you won’t be able to buy a cup of coffee without being subject to
    this crap, and Waiver of Class Action. Look on the back of receipts of things
    you buy in stores, there you will see this included in Retail Terms of Sale.
    I did after buying a car and was shocked!

    This is all about businesses making themselves responsible for nothing, not
    answerable to anyone, not having to pay for anything they do wrong when they
    break the laws. Uber even tried imposing this on its employees for sexual
    harassment and rape cases against them. These are civil law, NOT criminal
    law terms. Corporations and their employees can and are subject to criminal
    law, and its about time people started taking them to the task in Federal
    and State courts, for violation of their civil rights (Binding Arbitration
    and Waiver of Class Action denies everyone due process and equal protection) and conspiracy to do the same. There is NO choice when they all do it and you can’t get any product or service without agreeing to it beforehand or as part of a transaction. You can’t opt out of either of them, and if you try to your
    account will be cancelled, and have to do without many products and services
    that most people need in daily life and take for granted!

    It’s all racketeering, in violation of the RICO statutes. Every website is
    now including Mandatory Binding Arbitration and Waiver of Class Action in
    the Terms of Use, Terms of Service, Privacy Policies. IF prosecuted for the
    criminal violations of laws they are committing, maybe then enough will go
    to jails and prisons where they belong, and have to pay restitution that’s
    based on actual past and future harm to consumers. Notice how Wells Fargo
    got a free pass on that one, and many more- NOT ONE employee was arrested, despite the thousands of counts of Federal and State law criminal violations openly committed by them and executives up the chains of command. Anyone else
    would be doing life in a Federal prison right now if they did the same things!

    File criminal complaints with your State and Federal prosecutors- someone will
    pick up on this and be willing to try and convict these criminals.

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