The Consumer Financial Protection Bureau will hold a field hearing on March 10 in Newark, N.J. The topic? Forced arbitration. The Bureau is expected to release its final report that examines the use of predispute arbitration clauses in financial services and products under its jurisdiction. After the study’s release, the Bureau will be authorized to prohibit forced arbitration clauses in these products. RSVP to attend. Prepare for the field hearing. Check out other links on forced arbitration in financial services.
About Christine Hines
Posts by :
Fair Arbitration Now sent a letter to the U.S. Department of Education urging it to ensure that the legal rights of students are fully restored in the ECMC Group’s acquisition of 56 Corinthian College campuses. As the Department oversees the purchase, it should insist that ECMC or any other potential owner refrain from using forced arbitration against Corinthian students.
“By contractually removing students’ access to the court system, Corinthian and other for-profit colleges have shielded themselves from being held accountable for actual and potential wrongdoing and harm caused to their students. Students seeking an education to improve their lives and persuaded by the aggressive recruiting tactics and sleek marketing ploys of for-profit colleges, have been cheated and misled by many of these schools about career training potential and have been induced to incur thousands of dollars each in student loans,” the letter said. Read the letter here.
According to a report by the Consumerist, “Sources with insight on the proposed deal report that ECMC has not made any final determination regarding the use of arbitration clauses should the company successfully purchase the CCI campuses.”
In December 2014, Senator Dick Durbin (D-Ill.) sent a letter to ECMC Group’s CEO David Hawn: “…regardless of ECMC’s profit status, you have said publicly that with this acquisition you want to “help students.” You can start by not denying students’ rights to bring claims of wrongdoing before the courts. As such, I urge you to immediately drop any insistence on mandatory arbitration agreements in further negotiations over the Corinthian acquisition. This voluntary action would help regain the trust of students scarred by their Corinthian experience and help assure skeptical policymakers, like me, of your commitment to students.”
Nine consumer and investor organizations submitted a letter this week to the FINRA Dispute Resolution Task Force seeking transparency on the task force’s examination of forced investor arbitration. The groups – Americans for Financial Reform, the Alliance for Justice, the Center for Justice and Democracy, Consumers Union, National Consumers League, Public Citizen, the National Association of Consumer Advocates, US PIRG, and the Public Investors Arbitration Bar Association (PIABA) – sought the release of critical information that could inform the public on the forced arbitration process at FINRA, the industry-run body that oversees and operates investor arbitration proceedings. The task force is scheduled to meet today.
In their joint letter, the groups wrote: “ … we request that you support the release of information, including data in the form of studies and reports, that FINRA and/or the SEC have collected regarding investor awareness and understanding of predispute binding mandatory (or forced) arbitration; effectiveness of FINRA’s arbitrator selection process; prevalence of forced arbitration clauses in brokerage firm and investment advisory contracts; and other feedback that FINRA has collected from investors about any or all of these issues.”
The letter notes: “Mandatory arbitration deprives investors doing business with brokerage firms and investment advisers of the right to a judge and jury. Investors do not receive open hearings and often do not receive fair ones. In addition, the process is unlikely to result in adequate awards against brokers to deter misconduct and compensate injured investors. There is even evidence that brokers have been able to use the arbitration process to clean their records of investor complaints, as if they never occurred. Although it is intended as a substitute for public courts, FINRA’s arbitration system stunts development of critical legal policy. It also can deprive investors of the benefits of the law because arbitrators are not obligated to follow it, and written opinions are closed to the public or may not be issued at all. Meanwhile, important information about arbitrator selection and other elements of FINRA’s arbitration system remain unavailable to the public.”
In its MoneyBeat column, the Wall Street Journal noted the groups’ letter: “Nine groups advocating for consumers and investors are calling for the release of data the Financial Industry Regulatory Authority keeps on its arbitration program. In a statement sent to news media, the organizations criticized the industrywide policy of mandatory arbitration, which “deprives investors doing business with brokerage firms and investment advisers of the right to a judge and jury.”
InvestmentNews provided more detail on the groups’ request.
“Mandatory pre-dispute arbitration is procedurally unfair to consumers and jeopardizes one of the fundamental rights of Americans; the right to be heard and seek judicial redress for our claims,” said a Nov. 19, 2014 letter from 16 state attorneys general to the Consumer Financial Protection Bureau (CFPB).
The state AGs of Delaware, Kentucky, Massachusetts, California, Illinois, Oregon, Washington, New York, New Mexico, Maine, Iowa, Rhode Island, Vermont, Connecticut, Hawaii and Maryland came together to ask the CFPB to use its statutory powers to protect the public interest and restrict the use of forced arbitration clauses in consumer contracts under the agency’s jurisdiction.
“The Bureau has a unique opportunity to do something in the important area of consumer financial products or services,” said the AGs’ letter addressed to CFPB Director Richard Cordray, “the time is ripe to do so.”
by Ellen Taverna
Black Friday and Cyber Monday are the top two days of the year when companies promise the best deals and promotions. People wait for hours online or brave the bitter cold outside to be the first to retrieve these record breaking sales. What Amazon, Verizon, Gold’s Gym, Neiman Marcus, JP Morgan Chase and countless other brand-name companies don’t like to advertise on Black Friday or Cyber Monday is the forced arbitration clause buried in the fine-print of their contracts.
Most of us don’t take the time to read the mouse-print terms when we’re rushing to buy a new cell phone or gift card or applying for a gym membership or credit card. They’re often difficult to understand and there is no real opportunity to negotiate the terms. And big banks and corporations want it to stay that way.
What exactly is “forced arbitration”? It is when a company requires a consumer who may have been hurt or ripped off by the company to take their claims to private, secret tribunals instead of holding them accountable in court. The consumer is stuck with the results from the decision-maker picked by the company that wronged them because there’s no appeal.
That means when JP Morgan Chase suffered a massive data breach last month affecting over 70 million consumers, these consumers could be out of luck. That’s because JP Morgan Chase has attempted to get away with being held accountable in court by including forced arbitration clauses in its customer contracts.
JP Morgan is one a several Wall Street banks that uses forced arbitration against consumers, therefore, hundreds of thousands of claims of fraud, identity theft or illegal fees or charges could be kicked out of court and sent to a private system designed to favor Wall Street.
Wall Street banks and big retailers aren’t the only ones taking advantage of consumers; forced arbitration is rampant in student loans, payday loans, auto financing, and prepaid card contracts. The Consumer Financial Protection Bureau (CFPB) is reviewing the use of forced arbitration in financial services and products. The CFPB has authority to issue a rule banning forced arbitration for consumer financial products and services; and last week 16 state attorneys general have asked the CFPB to do so.
In the meantime, when you think you’re getting the deal of the century on Black Friday or Cyber Monday, remember this company could be taking away your legal rights if something goes wrong.
Let’s take a stand right now against this injustice! More than 82,000 consumers have signed a petition demanding that Wall Street restore customers’ legal rights. Make your voice heard and sign the petition.
Today more than 67,000 petition signers tell PNC Bank and Wells Fargo Bank to stop using forced arbitration in their customer accounts. The petition was delivered today at both banks’ headquarters – Pittsburgh and San Francisco. The petition is a campaign against the five largest banks – also including JPMorgan Chase, Citigroup and US Bancorp – that use forced arbitration clauses in the fine print, restricting their customers’ right to access the courts. Read more about the petition delivery and read the letters to PNC and Wells Fargo from the organizations behind the campaign. There’s still time to sign the petition: http://other98.com/revoke-wall-streets-license-steal/.
“The broad response that the petition has received around the country shows a strong consumer demand for an end to this rigged game designed by Wall Street,” said Christine Hines, consumer and civil justice counsel for Public Citizen’s Congress Watch division.
“Many consumers don’t even know that buried in their contracts is a forced arbitration clause that preemptively blocks their right to a day in court,” said Alexis Goldstein, communications director at Other98.com. “Forced arbitration is a secret weapon America’s biggest banks are using to deny basic rights to citizens.”
“Forced arbitration is a ‘get out of jail free’ card for the banks. Getting rid of it is about holding them accountable if they break the law, and making sure they too have to play by the rules,” added Lisa Donner, executive director of Americans for Financial Reform.
“It’s not acceptable for banks to force consumers to give up legal rights in order to open an account or get a credit card,” said Linda Sherry, director of national priorities for Consumer Action. “Along with our allies, we call on these powerful large institutions to do the right thing and eliminate forced arbitration in their contracts.”
“With forced arbitration, Wall Street has granted itself a license to steal from Americans and evade the law,” said American Association for Justice President Lisa Blue Baron. “The tremendous response to this petition sends a clear message that Americans are outraged by this despicable practice. It is time for financial institutions, as well as all corporations, to honor the rights of customers and stop using forced arbitration.”
“These five Wall Street banks are stripping away a constitutional right to a trial by jury from their customers if they have been cheated or harmed. It’s time for JPMorgan Chase, Citigroup, Wells Fargo, US Bancorp and PNC Financial to respect their customers and stop using forced arbitration,” said Ellen Taverna, legislative director of National Association of Consumer Advocates.
“Facing off against a big bank in arbitration is like playing a baseball game in which the other team hires and fires the umpires,” said Nan Aron, president of Alliance for Justice. “Today customers are demanding that banks restore the rights that have been lost in the fine print.”
The Consumer Financial Protection Bureau (CFPB) today announced new rules of the road that aim to make the use and costs of prepaid card accounts more transparent for users.
However, a fundamental flaw of most prepaid cards — that their terms deny consumers their right to go to court – may undermine the impact of these new rules.
Prepaid cards – formally known as general-purpose reloadable (GPR) prepaid cards – increasingly have become a convenient tool for consumers. A shopper can simply add money to a card that can be used later to buy a product or service at a cash register or over the Internet. Because of their ease of use, the market for prepaid cards has grown exponentially over the years, outpacing debit and credit card use.
But consumer advocacy groups have reported weak protections for prepaid card users, particularly for people in vulnerable communities who do not, or are unable to, open and maintain bank accounts. Advocates also have pointed to the lack of transparency in how prepaid cards are run, including how fees are charged on cards.
It’s significant that the CFPB has examined the problems and responded with a proposed rule that would, among other things, improve disclosures, add protections for lost and stolen cards, and make it easier for consumers to access their prepaid accounts. Notably, the CFPB also proposes to bring some prepaid cards protections under the Electronic Fund Transfer Act (EFTA) – a law that safeguards consumers engaging in electronic financial transactions.
However, some restrictions in prepaid card contracts could interfere with the EFTA protections that the CFPB seeks to provide to card users. Most prepaid card terms include a forced arbitration clause, which restricts users’ ability to sue card providers and financial institutions that violate the law and harm users in the process. Instead of court, these prepaid card terms require users to settle their legal disputes in a private arbitration system. Overwhelmingly, the prepaid card arbitration clauses also contain class-action bans. Class actions enable consumers to act and seek compensation not only for themselves but for others similarly harmed.
One prepaid card for example, requires arbitration of disputes, designates arbitration providers American Arbitration Association or JAMS to settle the disputes, and prohibits cardholder participation in class actions against it.
These provisions could block consumers who seek to enforce their rights under the Electronic Fund Transfer Act. Along with its protections, the EFTA contains language that grants consumers remedies for violations of its provisions. The law even provides guidance for consumers to join together in class actions to seek accountability. Yet, the prepaid card terms restrict that feature for consumers.
The CFPB is well aware of this problem across the financial services sector, and specifically in the prepaid card sector. In an ongoing arbitration study, it reported the prevalence of arbitration clauses and class-action bans in prepaid card terms:
• About 81 percent of the prepaid cards studied (51 of 63 prepaid card contracts), and all of the cards for which market share data are available, have arbitration clauses in their cardholder contracts.
• The overall use of arbitration clauses in prepaid card contracts is greater than in either credit card or checking account contracts.
• 96.1 percent of clauses in the CFPB’s prepaid study sample did not allow arbitration to proceed on a class basis.
The CFPB cannot act on forced arbitration until the study is completed. The agency must release the study as soon as possible, so it can write a rule to banish the predatory practice of forced arbitration from prepaid cards and all other consumer financial products and services.
By Edgar Ortega, Public Citizen Intern
As Veterans’ Day approaches, I am grateful for the people that serve in the armed forces. It takes a lot of courage to serve our nation. But while on active duty, military members are targeted by predatory lenders. Further, the Pentagon considers debts accumulated by military members to be a “significant morale and readiness issue.” That’s why it is important for military members to be protected from predatory lending practices.
Military personnel are required to receive their paycheck via direct deposit, on their checking accounts. For many young soldiers, this could be the first time they are selecting a checking account, and evaluating the features and fees. Military members can be deployed or moved frequently between bases, so it is crucial that they are shielded from fraudulent financial industry conduct.
The Pew Charitable Trusts studied banking options offered at banks and credit unions located on military bases. The study covered overdraft policies, disclosure of fees, and access to courts.
Pew found that more than half of the banks (11 out 17) it studied had forced arbitration clauses. These clauses prevent customers from suing in court for unfair and deceptive practices or other predatory conduct that cause financial harm.
According to Pew, only 4 out the 11 banks with arbitration clauses have an opt-out option, and none of the credit unions, with arbitration clauses, offer the option. Opt-out clauses typically allow consumers to get out of arbitration before a dispute by doing so in writing and within a time period after opening an account. However, opt-out clauses are not effective for service members or other consumers because most are unaware that these terms exist and the requirements for opting out are often difficult.
Banks can also limit legal recourse options though the use of class action bans. Class action lawsuits can be a “strong deterrent for an institution to engage in harmful or questionable practices,” said Pew in its report. Pew found that 12 out of 17 banks on military bases had class action bans while 6 out of 80 credit unions had them.
Service members,like all consumers, need the ability to access the court system to resolve disputes against powerful corporations. The Consumer Financial Protection Bureau (CFPB) can ensure that financial services providers do not engage in “unfair, deceptive, or abusive” conduct. It can ban forced arbitration in financial contracts and stop this unfair practice that affects us all.
by Alliance for Justice
Buried in everyday agreements for products, services, and jobs is fine print saying when you are harmed, you can’t go before an impartial jury or judge. Instead, these forced arbitration clauses send you to a decision-maker picked by the company that wronged you. Not surprisingly, one study found that arbitrators rule for companies over consumers 94 percent of the time. And you’re stuck with their decision because there’s no appeal. It’s a rigged system that helps companies evade responsibility for violating anti-discrimination, consumer protection, and public health laws. Lost in the Fine Print is a new short documentary narrated by former U.S. Secretary of Labor Robert Reich that tells the story of three everyday people who found themselves trapped in the forced arbitration system – and the impact on their lives and livelihoods. Lost in the Fine Print is a game-changer. It demystifies the concept of forced arbitration and urges us to demand change.
by Ellen Taverna
Today the Department of Defense (DoD) issued a new proposed rule expanding important protections to servicemembers and their families from predatory lending. The new rule closes the loopholes in the Military Lending Act (MLA) that allowed many financial services to fall outside the scope and protections of the law and put servicemembers at financial risk.
In 2006, the DoD reported to Congress that “…predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.” In response in large part to the DoD report, the MLA, bipartisan legislation passed by Congress and signed by George W. Bush in 2007, capped interest rates at 36 percent and applied other key consumer protections to certain forms of credit.
One very important consumer protection of the MLA includes a ban on forced arbitration clauses. Forced arbitration clauses are buried in the fine print of financial contracts and require servicemembers to resolve disputes with companies in a private system, outside of court. Arbitrators are not required to follow the law, and there is no public review to make sure the arbitrator got it right. In its 2006 report, the DoD states that “Servicemembers should retain full legal recourse again unscrupulous lenders. Loan contracts to Service members should not include mandatory arbitration clauses or onerous notice provisions, and should not require the Service member to waive his or her right of recourse, such as the right to participate in a plaintiff class.”
Unfortunately, the MLA only covers a narrow subset of payday loans, auto title loans and refund anticipation loans and unscrupulous business often founds ways around the law. We applaud the DoD’s new proposed rule to expand the current military financial protections and the ban on forced arbitration to a wide range of high-cost loans made to active-duty servicemembers and their dependents.
We hope the Consumer Financial Protection Bureau (CFPB) follows the lead of the DoD to protect all consumers – both military and civilian. The CFPB is required by the Dodd-Frank Act to study the use of forced arbitration and is authorized to issue a rule to limit or ban forced arbitration in all consumer contracts for financial services and products under its jurisdiction. We encourage the CFPB to write a strong rule to eliminate forced arbitration clauses for the benefit of all consumers.