The U.S. Supreme Court on Monday decided Kindred Nursing Centers L.P. v. Clark, ruling that nursing homes can continue to force patients to arbitrate even when the patients never specifically gave their family members the power to agree to arbitration on their behalf.
“Forced arbitration is an abusive practice that has been imposed on consumers for far too long. The notion that a nursing home patient can lose her right to go to court without ever having had any say on the matter is shameful,” said Remington Gregg, Consumer and Civil Justice Counsel with Public Citizen. “This decision is another unfortunate step in the Supreme Court’s arbitration jurisprudence. It further underscores the need for regulatory protections for all nursing home patients against forced arbitration clauses – and for Congress to protect all consumers by banning forced arbitration outright.”
Fair Arbitration Now Coalition Urges the House to Reject Legislation Stripping Federal Agencies of Authority to Restrict Forced Arbitration
Washington, DC (May 4, 2017) – Today, the House Financial Services Committee voted to advance H.R. 10, which would roll back key provisions of the Dodd-Frank Wall Street Reform Act and block federal agencies from restoring crucial legal rights of consumers and investors. The bill now moves to the House floor. The Fair Arbitration Now coalition sent a letter urging members of the House Financial Services Committee to reject Chair Jeb Hensarling’s (R-Tex.) H.R. 10, titled the Financial CHOICE Act of 2017, ahead of the bill’s hearing last week.
Among countless irresponsible provisions to unravel landmark financial reforms, one part of H.R. 10 would strip the Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC) of authority to restrict the abusive practice of forced arbitration. Many financial services companies bury forced arbitration clauses in the fine print of their consumer and investor contracts to kick any dispute out of public court.
“Contrary to its title, H.R. 10 would deprive consumers and investors of any choice of their day in court when resolving serious disputes with powerful financial institutions and force them into a rigged system,” said Amanda Werner, arbitration campaign manager with Americans for Financial Reform and Public Citizen. “These ripoff clauses only serve to kill consumer class action lawsuits and cover up widespread fraud and abuse, as we saw with the Wells Fargo scandal just months ago.”
In arbitration, consumer and investor claims are decided by a private firm chosen by the company with few legal protections and a limited ability to appeal an unfavorable decision. Banks and lenders also often bar harmed consumers from joining together in class action lawsuits or even speaking publicly about the company’s wrongdoing. While the SEC has not exercised its authority to restrict or ban forced arbitration at this time, the CFPB proposed a rule last year to restore consumers’ right to join together in class actions.
“This bad bill is the wrong choice for consumers, including veterans, workers, and elders. The bill blocks the Consumer Financial Protection Bureau from finalizing a forced arbitration rule that restores our day in court when banks violate the law, as in Wells Fargo’s creation of two million fake accounts,” said Lauren Saunders, associate director of the National Consumer Law Center. “The Wrong Choice Act gives corporate wrongdoers a get-out-of-jail-free card and guts the CFPB, the consumer watchdog that holds Wall Street accountable for the types of malfeasance that led to the Great Recession.”
Wells Fargo Settlement Highlights Importance of Class Actions, Dangers of Forced Arbitration
This week’s announcement of a proposed $110 million class action settlement for consumers harmed by Wells Fargo’s fraudulent bank account scheme highlights both the importance of class actions and the dangers of forced arbitration clauses in consumer contracts, according to members of the Fair Arbitration Now coalition. Congress has been considering bills to curtail class actions, and the Consumer Financial Protection Bureau is expected to release a rule this spring to ban forced arbitration clauses that have class action bans in financial contracts.
“People harmed by massive fraud should not have to wait this long,” said Nan Aron, President of Alliance for Justice. Customers of Wells Fargo brought class actions as early as 2013, but the bank successfully claimed that the fine print of actual account agreements prevented them from suing over the fraudulent contracts. “Wells Fargo used forced arbitration clauses and class action bans to prevent courts from holding the bank accountable for the full breadth of the scandal, and instead forced people to go one by one into a secretive and biased process,” said Ms. Aron.
As early as this month, Wells Fargo was still trying to block several class actions and force people into individual arbitrations. Courts had not yet ruled on the bank’s request to dismiss the class actions and send the cases to individual arbitration. The settlement still needs to be approved by a court.
“This case shows how forced arbitration clauses and class action bans deny people justice. The victims of Wells Fargo’s fraud will undoubtedly get less than they would have if the bank wasn’t holding a forced arbitration hammer over their head. There was the very real possibility that the court would have dismissed these cases entirely – not because Wells Fargo was innocent, but because of the fine print of its contracts,” said Paul Bland, Executive Director of Public Justice.
“Corporations like Wells Fargo that commit widespread wrongdoing should not get to dictate when they will participate in the civil justice system or when they will require consumers to resolve their complaints in individual secret arbitration. Consumers should have the choice to band together in court to address misconduct,” said Christine Hines, Legislative Director for National Association of Consumer Advocates.
“This announcement shows why class action rights are so necessary to our civil justice system,” said Lisa Gilbert, Vice President of Legislative Affairs for Public Citizen. “Since most consumers simply give up when forced into arbitration, these rip-off clauses give banks a license to steal without consequence.”
Wells Fargo found that its business was continuing to suffer from the scandal. This week, its regulator gave the bank a rare “needs to improve” rating under the Community Reinvestment Act. Wells Fargo also continues to face a campaign for people to move their money out of the bank until the bank agrees to drop forced arbitration clauses in all cases.
“Settling this one case is not enough. Wells Fargo must get rid of its forced arbitration clauses and commit not to enforcing the ones it has. The bank has engaged in a string of misconduct – from illegally repossessing cars or foreclosing on military servicemembers to using unfair and deceptive practices to increase overdraft fees – that goes far beyond this case,” said Lauren Saunders, associate director of the National Consumer Law Center.
In February, a broad-based coalition of groups called on Wells Fargo’s CEO Timothy Sloan to cease forcing its customers and workers to submit to forced arbitration. The group unveiled a new website, WeDOCount.org, focusing on the campaign to make the switch from Wells Fargo to more consumer-friendly banks or credit unions.
“Wells Fargo will eventually put this scandal behind it, but wrongdoers will continue to block justice and deny victims their day in court until we end forced arbitration. The Consumer Financial Protection Bureau must finalize its forced arbitration rule and Congress must pass the Arbitration Fairness Act,” said Julia Duncan, director of federal programs for the American Association for Justice.
Last week, lawmakers laid the groundwork for a battle over consumer rights and forced arbitration that likely will play out through the spring.
First, congressional Democrats introduced several bills to restore consumers’ right to hold corporations accountable in court for wrongdoing. Led by U.S. Sen. Al Franken (D-Minn.), lawmakers on March 7 introduced a slate of bills aimed at ending the use of forced arbitration in various sectors. Forced arbitration provisions, also known as “ripoff clauses,” block consumers from challenging illegal corporate behavior.
Lawmakers were joined at a packed press conference by people who had been harmed by forced arbitration: a veteran illegally fired from his job while serving in the military and blocked from suing his employer; a victim of Wells Fargo fraud whose class action was kicked out of court; and former news anchor Gretchen Carlson, barred from speaking out about sexual harassment she had suffered at Fox News.
Among the bills introduced were Franken’s Arbitration Fairness Act, which would prohibit forced arbitration in consumer, employment, civil rights, and antitrust cases and Sen. Sherrod Brown’s (D-Ohio) Justice for Victims of Fraud Act, which would close the “Wells Fargo loophole” by restoring consumers’ right to sue when banks open fraudulent accounts without their knowledge.
However, in stark contrast to this push to strengthen rights and restore corporate accountability, GOP lawmakers began pressing to make it harder for consumers to band together when harmed and take corporations to court.
Two days after the Franken press conference, the House passed H.R. 985, the so-called “Fairness in Class Action Litigation Act” would effectively kill class actions by imposing insurmountable requirements to file group lawsuits. This would make it nearly impossible for consumers to hold corporations accountable for illegal and abusive behavior.
Among other onerous provisions, H.R. 985 would require that each harmed person suffer the “same type and scope of injury.” Under this absurd standard, a Wells Fargo customer with two fake accounts opened in his or her name could be barred from joining together with customers who had three fraudulent accounts. The bill also would build in costly and unnecessary delays and appeals, limit plaintiffs’ choice of counsel, and drastically restrict attorneys’ fees.
Joining together in a class action often is the only chance real people have to fight back against widespread harm, including corporate fraud and scams – particularly when claims involve small amounts of money, where it would be too costly for an individual to pursue a separate claim. Class actions have also been critical vehicles for overcoming race- and gender-based discrimination and have been instrumental in achieving victories as momentous as desegregation of our schools, as was the case in Brown v. Board of Education.
Beyond protecting the rights of the disadvantaged, class actions act as a crucial check on corporate misbehavior by returning money to harmed consumers and workers. Removing the threat of class liability would encourage systemic fraud, as banks and lenders that pad their bottom lines by committing fraud would have a competitive advantage in the marketplace.
In the financial sector, the proposed CFPB arbitration rule is a major target of financial industry lobbyists precisely because it would restore the right of consumers to join class action lawsuits. According to the CFPB’s arbitration study, class actions returned $2.2 billion in cash relief to 34 million consumers from 2008-2012, not including attorneys’ fees and litigation costs. While the CFPB rule is expected to be finalized this spring, it would be rendered largely ineffective should H.R. 985 become law.
You can watch our video against H.R. 985 here and follow developments on Twitter using the hashtag, #RipoffClause.
This afternoon, lawmakers introduced several pieces of legislation to curb the growing use of “ripoff clauses” and ensure harmed consumers, service members, students, and workers have a right to fight back in court against corporate wrongdoing. Known as forced arbitration, this practice strips Americans of any meaningful way to hold companies accountable for fraud or abuse and grants corporations a license to steal to pad its bottom line.
Forced arbitration no place in any system that is fair to everyday people. The bills introduced today would work hand-in-hand with a rule proposed by the Consumer Financial Protection Bureau (CFPB) to restrict the financial industry’s use of forced arbitration. Below are the stories of several real people harmed by forced arbitration, who would benefit from this newly-introduced legislation and the proposed CFPB rule.
Credit Cards
Tracy Kilgore, New Mexico
In July 2011, Tracy Kilgore went to a local Wells Fargo branch to change a signature card on behalf of the Daughters of the American Revolution, where she volunteered as Treasurer. Tracy did not personally bank with Wells Fargo or have any accounts with them. The bank teller asked her for her name and ID and began typing away her computer, and she promptly left once the change was processed.
Two weeks later, Tracy received a letter from Wells Fargo saying her credit card application had been rejected, though she never applied for one. When she saw the application was filed the day after she had visited the Wells Fargo branch, it became clear the bank tried to open a fraudulent credit card in her name. After Tracy found the rejected application was listed on her credit report, she called and wrote to Wells Fargo for months asking them to remove it. The bank kept saying it would take another 7-10 days, then another 2-3 weeks, to no avail. In the end, she never even got an apology.
Now, Tracy has joined with other defrauded customers in a class action lawsuit against the bank, but Wells Fargo is trying to force each consumer to fight them one-by-one in a biased and secretive arbitration system. Even though Tracy has never banked with Wells Fargo, their lawyers are trying to block her from suing them in court by pointing to an arbitration clause she never signed.
Auto Financing
Sergeant Charles Beard, California
Sergeant Charles Beard was about to be deployed to Iraq and asked for some help making his car payments. His lender, Santander Consumer USA, Inc., offered him a forbearance for a few months, but in exchange, had Sergeant Beard sign a modified lease agreement. Little did he know, a forced arbitration provision was buried in the fine print.
While serving his country in Iraq, Sergeant Beard fell behind in his payments. Men came to his home and repossessed the car – breaking federal law, which protects active duty soldiers by requiring lenders to obtain court orders before seizing their cars. Sergeant Beard brought a class action against the lender with other soldiers to enforce their protections under federal law, but their claims were thrown out due to a class action ban in the arbitration clause.
Payday Loans
Stephanie Banks, Oregon
In August 2013, Stephanie Banks made $15 an hour as a bookkeeper for the Salvation Army. To help pay rent for her and her son, she took out a $300 loan from the payday lender Rapid Cash, putting up the title to her car as collateral. Her interest rate was capped at 153.73% per year under state law. Soon after, Ms. Banks started chemotherapy to treat her lung cancer and retired from her job. A year later, she was in serious financial trouble, and had to declare bankruptcy. She listed the loan from Rapid Cash as a debt to discharge and finished the process in court with a lawyer.
Then, in August 2015, Ms. Banks almost had a heart attack when she received a letter from a collection service, claiming she owed Rapid Cash over $40,000. They threatened to destroy her credit if she did not pay immediately. Ms. Banks filed a free motion in court to dispute the $40,000 claim. Rapid Cash responded by pointing to an arbitration clause, buried in the fine print of the original agreement she signed two years earlier. The court ruled the clause still held and Ms. Banks would have to argue her case to a private arbitration firm chosen by Rapid Cash. To do this, she would have to pay $200 in arbitration fees, almost as much as her original loan.
Debt Relief
Bernardita Duran, New York
Bernardita Duran was 53 years old with only $700 in Social Security income when she paid an Arizona debt relief company to settle her credit card debts. Four thousand dollars later, Ms. Duran realized she had been scammed. She sued the company in New York federal court to get her money back, but the company pointed to a clause in their contract which stated her claims must be decided a private arbitrator – located in Arizona.
Ms. Duran protested that she could not afford to travel to Arizona, as it would cost more than a month’s worth of her income and prevent her from making rent. But the appeals court ruled that only the arbitrator in Arizona could decide if Ms. Duran could bring her claim in New York – meaning she would have to first travel across the country to Arizona to argue to the arbitrator that it’s unfair and unconscionable to force her to arbitrate her case there.
Private Student Loans
Matthew Kilgore, California
Ever since he was a child, Matthew Kilgore wanted to be a helicopter pilot. Mr. Kilgore thought he was on his way to achieving his dream when he enrolled at Silver State Helicopters, a for-profit aviation school that offered pilot training and certification. At the school’s recommendation, Mr. Kilgore took out a $55,000 private student loan from lender Keybank to cover his tuition. But Mr. Kilgore’s ambitions came to a sudden end in 2008 when his school abruptly went out of business and filed for bankruptcy, leaving students with tens of thousands of dollars in student loans but no marketable skills or diplomas. Since then, his loans nearly doubled to $103,000 with accrued interest.
Mr. Kilgore filed a lawsuit on behalf of himself and other Silver State students against Keybank to prevent them from enforcing their loan agreements or ruining the students’ credit. However, Keybank loan contracts contained an arbitration clause which prohibited class actions. An appeals court ruled the students would have to settle disputes with Keybank individually in arbitration. Meanwhile, other Silver State students who had similar loans with Student Loan Express, Inc. got $150 million in debt relief because their loan agreements did not include an arbitration clause.
Fair Arbitration Now, a network of more than 70 consumer, labor, legal and community organizations, is pleased to support the Justice for Victims of Fraud Act of 2016. Working hand-in-hand with a rule from the Consumer Financial Protection Bureau (CFPB), the legislation would ensure that financial services customers victimized by unauthorized account openings in their name will be able to seek remedies in court.
The bill rightly addresses a central issue – the use of predatory forced arbitration clauses – stemming from Wells Fargo & Co.’s illicit sales practices that led to the opening of millions of scam credit and banking accounts. Wells Fargo has since compounded its customers’ harm by seeking to enforce broad terms of legitimate accounts that require customers to resolve claims against the bank in private individual arbitration rather than in court.
Simply put, corporations use pre-dispute binding mandatory arbitration (or forced arbitration) clauses to escape accountability for their misconduct. They determine the rules for the secret, private system – including the forum arbitration provider – and insert them into their take-it-or-leave-it contracts with consumers and workers. These often costly arbitration proceedings deprive ordinary consumers of the procedural safeguards of the court system, including the right to appeal, which is rarely available. Consequently, most consumers are unable to vindicate their rights under state and federal laws, particularly on an individual basis.
Wells Fargo requiring an inherently unfair arbitration process on its defrauded customers is particularly galling because they are simply seeking remedies for harm caused by sham accounts the bank opened in their names without their consent. These harms include wrongful fees and charges, potential harm to their credit, and other inconveniences and financial injuries.
While the Justice for Victims of Fraud Act is crucial to remedying specific past abuses, the Consumer Financial Protection Bureau (CFPB) – the agency that exposed Wells Fargo’s fraud – is finalizing a rule to prevent future fraud by blocking banks and lenders from using forced arbitration clauses as a license to steal. The rule would restore customers’ ability to join together to challenge widespread fraud and return transparency to arbitration by creating a public record of claims and outcomes. More than 100,000 individual consumers and 281 consumer, civil rights, labor, and small business groups wrote to applaud the Bureau’s rule.
The Wells Fargo scandal highlights the loss of rights in the fine-print terms of financial services contracts and the lack of incentive of Wall Street to obey laws unless consumers can go to court to hold them accountable. We commend and thank you for introducing the Justice for Victims of Fraud Act of 2016. Working in conjunction with the CFPB’s forward-looking rule, it will ensure that banks are incentivized to protect their customer accounts from fraud and cannot pad their profits with money fraudulently taken from consumers unable to fight back.fan-letter-justice-for-victims-of-fraud-act
If you have any questions or concerns, please contact Christine Hines, christine@consumeradvocates.org or Amanda Werner, awerner@ourfinancialsecurity.org.
Sincerely,
Fair Arbitration Now (Organizations that support ending the predatory practice of forced arbitration in consumer and non-bargaining employment contracts: https://fairarbitrationnow.org/coalition/).
Since federal agencies announced their $185 million enforcement action against Wells Fargo for widespread fraud, there has been renewed focus on the bank’s use of forced arbitration.
Forced arbitration is a relatively new phenomenon designed to allow corporations to keep misconduct out of public view, evade the law, and escape accountability. Buried in the fine print, “ripoff clauses” force consumer and worker claims into arbitration – a secretive, rigged system where the corporation gets to pick the arbitration provider and which rules will apply – and bars people harmed in similar ways from joining together in class actions to challenge systemic abuses.
Because agencies have limited resources, individual and class action lawsuits brought by consumers and workers often act as the canary in the coal mine to alert agencies to fraud and abuse. The CFPB is in the midst of a rulemaking that would restore consumers’ right to join together to hold banks accountable for predatory behavior like the Wells Fargo scandal. Since May, more than 100,000 individual consumers and 281 consumer, civil rights, labor, and small business groups wrote in to support the proposed rule.
Background on the Wells Fargo Scandal
At least 3,500 Wells Fargo employees opened approximately 1.5 million bank accounts and approximately 565,000 credit cards without the consent of their customers. According to the CFPB, its “investigation found that since at least 2011, thousands of Wells Fargo employees took part in these illegal acts to enrich themselves by enrolling consumers in a variety of products and services without their knowledge or consent.” In February 2012, Wells Fargo started using forced arbitration clauses in all of its customer checking and savings account agreements, shortly after evidence began emerging that it was defrauding its customers.
Customers have been trying to sue Wells Fargo over fraudulent accounts since at least 2013. However, the bank forced those customers into secret, binding arbitration by invoking fine print in consumers’ legitimate account agreements to block them from suing over fake accounts. This practice helped keep Wells Fargo’s massive fraud out of the spotlight for so long.
Shariar Jabbari & Kaylee Heffelfinger et al. v. Wells Fargo (U.S. District Court, N.D. Cal.)
Consumers filed a lawsuit against Wells Fargo claiming that the bank unlawfully opened a series of accounts in their names and then charged fees in connection with those unauthorized accounts. The lawsuit specifically alleged the existence of a corporate policy compensating employees based on the number of accounts opened.
Since this practice was so widespread, the consumers filed their suit on behalf of all consumers subjected to this conduct. In 2015, Wells Fargo vigorously denied the allegations, describing its culture as “focused on the best interests of its customers and creating a supportive, caring, and ethical environment for our team members.”
Shariar Jabbari opened two accounts in January 2011. By April 2011, two additional accounts were opened in his name, with $100 transferred to each from his savings account. By June 2011, five more accounts were opened for Jabbari without his knowledge or consent.
Wells Fargo invoked its newly-added arbitration clause to dismiss the complaint, arguing that disputes, including any dispute over whether the clauses applied at all, must be decided by a private arbitrator hired by the bank. The bank claimed that these customers “agreed” to arbitrate everything because the fake accounts “could not have been opened had [the customer] not opened the legitimate accounts which he admits to opening.” Therefore, even completely unauthorized accounts could not escape the “expansive terms of the arbitration agreements.”
Another customer in the class action, Kaylee Heffelfinger, claimed that Wells Fargo opened two accounts in her name in January 2012, weeks before she opened legitimate accounts in March 2012. Wells Fargo argued that “it is at least plausible that [its] employees generated the unauthorized accounts in January 2012 after Heffelfinger initiated a relationship with, and provided information to, the Wells Fargo branch where her legitimate accounts were opened” and thus even those claims should be forced into arbitration.
Incredibly, the federal district court granted Wells Fargo’s demand for individual arbitration on each of these claims. The customers appealed, and on September 8, 2016 – the day the CFPB announced its enforcement action – Wells Fargo settled with the customers on the condition they not disclose the details of their case.
David Douglas v. Wells Fargo (Superior Ct of Los Angeles, CA)
A customer named David Douglas tried to sue Wells Fargo on his own after he learned that three of the local employees at his Wells Fargo branch used his personal information to open at least eight accounts under his name without his permission, charging him fees for those accounts. More than three years ago, Douglas alleged that Wells Fargo “routinely use[d] the account information, date of birth, and Social Security and taxpayer identification numbers…and existing bank customers’ money to open additional accounts.”
Wells Fargo moved to compel forced arbitration over the disputed accounts, suggesting that “[s]ince the information allegedly misused was provided in connection with the original account, by definition any such claim of misuse arises out of or relates to the original account.” The bank similarly claimed that Douglas’ allegation that Wells Fargo transferred money into these fake accounts without his permission “is the most routine kind of claim covered by the Arbitration Agreement that one can imagine.”
Douglas opposed these arguments, adding that he never could have signed a forced arbitration agreement for those unauthorized accounts because they were opened without his knowledge. Incredibly, the court granted Wells Fargo’s demand for arbitration, relying on the arbitration clause from his original, non-fraudulent account with Wells Fargo which claimed to cover “all disputes” between him and the bank.
By pushing these cases into secret arbitration, Wells Fargo was able to keep this scandal out of public view for years and continue profiting from massive fraud. This culture of secrecy was pervasive. As CFPB Director Richard Cordray described at the Senate Banking Committee hearing on September 20, when the Los Angeles City Attorney brought an action against the bank, “one of the first things Wells Fargo did…was aggressively seek a protective order to keep the proceedings as much as possible from public view.” These actions, along with forced arbitration, allowed the bank to evade accountability and transparency for at least five years.
Senate Banking Hearing on September 20
At the Senate Banking Committee hearing, Senator Sherrod Brown (D-Ohio) asked Wells Fargo CEO John Stumpf if the bank would continue to argue in court that mandatory arbitration clauses covering real accounts should apply to fake accounts, forcing defrauded consumers into arbitration. Stumpf was non-committal, replying that he would “have to talk to my legal team, and we can get back to you on that.”
During the second panel, Senator Brown asked Director Cordray, how the agency’s proposed rule to restrict forced arbitration in consumer financial contracts would have helped customers that sued the bank over fraudulent accounts. Cordray replied that Wells Fargo’s arbitration clause might defeat a class action, noting that “as happened here, when there’s massive wrongdoing on a wide scale, but small amounts of harm to individual consumers, it will be very difficult to get any relief other than through a class action.”
Senator Elizabeth Warren (D-Mass.) then asked Director Cordray if he thought that “forced arbitration clauses make it easier for big banks to cover up patterns of abusive conduct, including the years of misconduct by Wells Fargo in this case.” Cordray answered, “I do think so, yes.”
Senator Warren went on to note that the CFPB has “proposed strong new rules that would ban forced arbitration clauses that prevent consumers from joining together to bring a public action in court,” and “[i]f we had class actions on this back in 2010, 2009, 2008, then the problem never would have gotten so out of hand.”
House Financial Services Committee Hearing on September 29
At the House Financial Services Committee Hearing, Representative Brad Sherman (D-Calif.) asked Stumpf if he would continue to invoke ripoff clauses to deprive consumers of their day in court in light of this scandal. Stumpf refused to end this practice.
Fair Arbitration Now Coalition Condemns Wells Fargo for Refusing to Stop Using Forced Arbitration Against Victims of Fraudulent Account Scheme
Washington, DC (September 30, 2016) – The Fair Arbitration Now coalition strongly denounces Wells Fargo and its CEO, John Stumpf, for refusing to end the bank’s practice of preventing defrauded customers from suing in court. At a hearing held in the U.S. House of Representatives Committee on Financial Services yesterday, Stumpf stated unequivocally that Wells Fargo will continue to force consumer disputes into secret individual arbitration. The hearing examined Wells Fargo’s massive scheme to fraudulently open accounts in his its customers’ names.
The FAN Coalition is disappointed, but not surprised, that the CEO of a powerful financial institution would publicly champion forced arbitration. In 2015, the Consumer Financial Protection Bureau (CFPB) released a comprehensive study on forced arbitration, which found that it is heavily rigged in favor of financial institutions. Among other things, the CFPB found that in forced arbitration, consumers bringing claims against corporations won only 9 percent of the time. However, when corporations sued their customers, the corporation won in 93 percent of arbitrations. Additionally, arbitration proceedings are completely confidential, which allows which allows corporations like Wells Fargo to hide widespread wrongdoing, as was the case with their fraudulent account cross-selling scheme.
Yesterday, Stumpf was asked by Rep. Brad Sherman (D-CA) whether his bank would continue to invoke forced arbitration clauses buried in the fine print of its customer contracts to prevent customers from holding the bank accountable for its illegal activities. Stumpf refused to end the practice, stating that he “believes in arbitration.” Stumpf previously declined to restore his customers rights last week when asked by Sen. Sherrod Brown (D-OH) during a hearing held by the U.S. Senate Banking Committee. At the same Senate hearing, Sen. Elizabeth Warren (D-MA) stated that the bank’s use of forced arbitration allowed them to cover up their patterns of abusive conduct, noting that “[i]f we had class actions on this back in 2010, 2009, 2008, then this problem never would have gotten so out of hand.”.
The CFPB recently proposed a rule to restore consumers’ right to join together in class actions. More than 280 consumer, civil rights, and small business advocacy groups and over 100,000 individuals commended the CFPB for taking this crucial step to limit big banks’ and other financial companies’ efforts to escape accountability for breaking the law, and urged the agency to use the full force of its authority to restore consumers’ right to choose how to resolve disputes with financial institutions.
Fair Arbitration Now Coalition Urges the House Financial Services Committee to Reject Legislation Stripping Federal Agencies of Authority to Restrict Forced Arbitration
This morning, the Committee will mark-up the “Financial CHOICE Act of 2016” (H.R. 5983), which would roll back key provisions of the Dodd-Frank Wall Street Reform Act and block federal agencies from restoring crucial legal rights of consumers and investors.
Washington, DC (September 13, 2016) – The Fair Arbitration Now coalition sent a letter urging members of the House Financial Services Committee to reject Chair Jeb Hensarling’s (R-Tex.) H.R. 5983, titled the Financial CHOICE Act of 2016, ahead of the bill’s scheduled mark-up Tuesday morning. Contrary to its title, H.R. 5983 would deprive consumers and investors of their choice on how to resolve serious disputes with powerful financial institutions by stripping the Consumer Financial Protection Bureau (CFPB) and the Securities and Exchange Commission (SEC) of authority to restrict the abusive practice of forced arbitration.
Many financial services companies bury forced arbitration clauses in the fine print of their consumer and investor contracts to kick any dispute out of public court. Many forced arbitration clauses also block class action lawsuits. In arbitration, consumer and investor claims are decided by a private firm chosen by the company with few legal protections and a limited ability to appeal an unfavorable decision. Harmed consumers and investors are also often barred from speaking publicly about the company’s wrongdoing, shielding widespread fraud and misconduct from the public eye.
While the SEC has not exercised its authority to restrict or ban forced arbitration at this time, the CFPB recently proposed a rule to restore consumers’ right to join together in class actions. Particularly just one week after the CFPB fined Wells Fargo a record $100 million for committing massive fraud against its customers – whose claims against the bank have been kicked out of court due to forced arbitration – H.R. 5983 would undermine the purpose of Wall Street Reform by aiding and abetting reckless corporate behavior.
Fair Arbitration Now Coalition Applauds Obama Administration for Restoring Rights of Government Contract Employees
Department of Labor, Federal Acquisition Regulatory Council release final regulations and guidance implementing the Fair Pay and Safe Workplaces Executive Order, which prevents certain federal government contractors from forcing their employees into arbitration
Washington, DC (August 24, 2016) – The Fair Arbitration Now coalition applauds the Obama Administration for today’s announcement of the final regulations and guidance implementing the Fair Pay and Safe Workplaces Executive Order, which will ensure that many corporations that accept taxpayer-funded government contracts cannot prevent employees from holding them accountable in court to answer for allegations of discrimination, sexual harassment, or sexual assault.
The Executive Order, signed by President Barack Obama in July 2014, prohibits federal government contractors with contracts of $1 million or more from requiring employees to have legal disputes decided in forced arbitration if the dispute arises under Title VII of the Civil Rights Act of 1964, or involves claims for sexual assault or sexual harassment.
For a number of years now, and with the blessing of a slim majority of the Supreme Court, corporations have been inserting forced arbitration clauses into the fine print of often non-negotiable contracts to strip workers of the right to hold them accountable in court if the company discriminates against them, violates equal pay laws, cheats them out of wages, or subjects them to unsafe working conditions. Forced arbitration does not provide important procedural guarantees of fairness and due process that are the hallmarks of courts of law.
Additionally, forced arbitration is a completely secretive process where the public, the media, and government entities cannot uncover information about outcomes or the arbitrator’s reasoning when reaching a decision.
“We applaud the Obama Administration for following through on this critically important Executive Order,” said Lisa Gilbert, Director of Public Citizen’s Congress Watch division. “The issuance of these final regulations by the administration helps ensure that government contractors who receive significant taxpayer dollars cannot defy our nation’s anti-discrimination laws by hiding behind forced arbitration clauses.”
“We applaud the Department of Labor for its leadership in extending important protections to the employees of federal contractors,” said Nan Aron, President of Alliance for Justice. “It is unconscionable that companies seeking to do business with our federal government would deny employees their right to a day in court when pursuing civil rights and sexual harassment claims. Our government sets an example for private industry by banning forced arbitration in these cases. This action comes at the same time that the Consumer Financial Protection Bureau is weighing a rule to protect consumers from class action bans in forced arbitration clauses imposed by banks and other lenders. Forced arbitration is an unfair system that has been imposed on consumers and workers for far too long, and we are glad to see signs that the tide is turning against this practice.“
“In all instances, consumers and workers should retain their legal right to seek accountability in court when harmed by unfair or illegal corporate practices,” said Christine Hines, Legislative Director of the National Association of Consumer Advocates. “By restricting forced arbitration, the Obama Administration has taken a huge step forward for ordinary Americans by ensuring that employees of government contractors can seek justice in many cases when they’re wronged.”
“The American Association for Justice applauds this bold move to strengthen civil rights laws and ensure accountability for survivors of sexual assault and harassment,” said Julie Braman Kane, President of the American Association for Justice. “Corporations accepting taxpayer dollars will now have to play by the rules. We look forward to the full implementation of this important law.”