Consumer bureau moves to prevent the next Wells Fargo-style scandal
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This week, the Consumer Financial Protection Bureau (CFPB) issued their long-awaited final rule to limit the use of forced arbitration clauses in the financial marketplace. With Wells Fargo continuing to insist that its defrauded customers be barred from taking them to court for widespread fraud, and with veterans and servicemembers still running up against fine-print clauses that block them from accessing protections granted by federal laws, consumers need this commonsense rule more than ever.

Big banks and payday lenders bury “ripoff clauses” in the fine print of take-it-or-leave-it contracts to block class-action lawsuits and push all disputes into biased and secret proceedings rigged in favor of companies. Since few consumers can afford to fight small-dollar disputes by themselves, banks can trick and trap customers with illegal charges and then pocket billions in stolen money. Without class-action lawsuits to level the playing field, bad actors can actually gain a competitive edge in the marketplace by harming consumers.

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Between 2009 and 2016, while Wells Fargo was creating millions of fake accounts, only 215 customers pursued claims against the bank in arbitration. Like the relatively small number of people who have used arbitration against other banks and lenders, Wells customers faced a rigged system: arbitration firms are typically handpicked by financial companies and rely on them for repeat business. Unsurprisingly, they rule in the company’s favor 93 percent of the time. Indeed, consumers in arbitration ended up paying more restitution to Wells Fargo than the other way around.

 

Arbitration’s secrecy is just as alarming as its bias. After the Wells Fargo scandal broke, reports revealed that the bank’s customers had been trying to sue over fake accounts since at least 2013. But because they had forced customers to keep their charges of fraud secret, the bank was able to go on systematically stealing from its customers for another three years.

The CFPB rule finally limits this fine-print trick that big banks, predatory lenders, and other financial companies use to put themselves above the law. The culmination of more than five years’ work, the rule fulfills a directive from Congress to study the impact of arbitration and protect consumers by banning or restricting the practice if it is found to cause harm. The CFPB acted after a comprehensive three-year study that left no doubt on that score.

The new rule guarantees consumers’ ability to join forces, ending class-action bans and restoring transparency to individual arbitration by making data on claims and outcomes available to the public. The CFPB does not create new processes or procedures. What it does is restore consumers’ right to enforce protections guaranteed by our Constitution and by state and federal law.

To date, 310 consumer, civil rights, labor, and community organizations representing millions of Americans and more than 100,000 individual consumers have weighed in to support  the rule. It has also received enthusiastic support from the Military Coalition, which advocates on behalf of 5.5 million servicemembers and their families.

On the flip side, the U.S. Chamber of Commerce — the huge corporate lobbying group funded by Wall Street banks and payday lenders — has fought tooth-and-nail to oppose any CFPB action to rein in ripoff clauses. The Chamber’s allies in Congress are expected to make an attempt to block this needed rule with legal challenges or by lobbying lawmakers to mount a Congressional Review Act challenge.

As Wells Fargo’s reputation nosedives to the status of consumers’ least favorite bank, we should remember that the company’s abusive practices were enabled and prolonged by its use of forced arbitration. Members of Congress should heed calls for increased accountability and celebrate this new CFPB rule as the landmark victory for consumer rights that it is.

Lisa Gilbert is vice president of legislative affairs at Public Citizen.

Lisa Donner is executive director of Americans for Financial Reform.


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