I’ve been in Washington a long time. I am used to countering distorted claims from the phalanx of special interest lobbyists that you are forced to climb over everywhere you go. But I am particularly appalled by their arguments against the Consumer Financial Protection Bureau’s (CFPB) new arbitration rule.
The rule, which the House of Representatives voted to repeal last week, prohibits bank account, payday loan and other financial contracts from taking away our day in court through fine-print forced arbitration clauses containing bans on class-action lawsuits. There are three big lies being pushed by lobbyists.
Lies, damn lies and statistics. That is like saying that, because the average taxi trip across town is cheaper than the average airplane flight across the country, we should prohibit the choice of a 200-person airplane and force everyone to take individual taxis everywhere.
The very few people who take the time and expense to pursue an individual arbitration — only 16 people a year on average in the entire country got those $5,400 “average” arbitration awards — had quite large claims, averaging $27,000. The CFPB’s study found that, nationwide, only 25 people file arbitrations each year seeking less than $1,000.
But several million people each year get relief in class actions, which are an efficient way of resolving smaller claims by many people. For example, Kaylee Heffelfinger, one of the lead plaintiffs in the class action against Wells Fargo, alleged $210 in unauthorized fees. Her claim did not make sense to pursue by herself.
Are lobbyists saying that people who got hit with $210 in illegal bank fees will get $5,400 if they go to arbitration?
No; most will get nothing. As the esteemed Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit put it: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”
Big Lie No. 2: Class actions only benefit the attorneys.
The CFPB studied 419 consumer financial class actions and found $2.7 billion in relief for consumers, with only 18 percent of that going to attorneys. That is, $2.2 billion went to consumers. The math I was taught says that $2.2 billion is a pretty big benefit and is a lot more than the attorneys got.
Lawyers who represent consumers work for years without pay, fighting against mega-banks, and when they win, they are paid for doing their jobs. I don’t hear lobbyists complaining about the money Wall Street lawyers make fighting against these cases and dragging them out — even in arbitration. What's more, I bet the average person would rather see the consumer lawyers get paid for holding banks accountable than let a bank illegally take $100 each from a million people.
A few anecdotes about class actions when held up against the CFPB’s extensive data don’t justify taking away everyone’s day in court. The CFPB's extensive data about the benefit of class actions for consumers also refute any anecdotes about supposedly frivolous lawsuits.
Should we make all industry debt-buyers (a form of debt collector you never want to meet) give up the right to file lawsuits because some (many) sue the wrong person, seek the wrong amount or file suits after the statute of limitations has passed?
Big Lie 3: CFPB Director Richard Cordray has “gone rogue” by finalizing the arbitration rule.
To the contrary, Cordray was acting on authority that Congress gave the CFPB in 2010 in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Congress decided that forced arbitration was a problem, ordered the CFPB to conduct a study and provided that the CFPB could “prohibit” forced arbitration if the CFPB found that doing so was “in the public interest and for the protection of consumers.”
As directed by Congress, the CFPB studied the issue extensively, issuing a preliminary report in 2013 and a final, 728-page report in 2015. A proposed rule was issued in May 2016 after the CFPB concluded that the rule met the congressional standard. The final rule is the logical and methodical conclusion of the process that Congress itself began.
By the way, Director Cordray didn't even go so far as to “prohibit” arbitration — as congressional authority would have allowed. His measured new rule allows forced arbitration of individual cases, but it does not allow firms to bury class action bans in arbitration clauses. The CFPB is not going “rogue;” it’s doing its job.
The real news here? It’s the poverty of industry lobbyists and lawyers’ claims against the CFPB’s extensively studied arbitration rule. If this is the best the opposition can do, the Senate should easily vote to uphold the rule and resist special-interest calls to strip their constituents of their right to band together to hold corporate wrongdoers accountable by restoring their day in court.
Ed Mierzwinski is Consumer Program director for the U.S. Public Interest Research Group (PIRG), which advocates for the public against powerful interests. He also chairs the Americans for Financial Reform (AFR) CFPB Task Force. AFR is a progressive organization that advocates for financial reform in the United States, including stricter regulation of Wall Street.
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