Mandatory Arbitration – “It Just Ain’t Right.”

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On August 22, 2017, the New York Times published an editorial by Richard Cordray, Director of the Consumer Financial Protection Bureau. This federal agency was created during the Obama administration. Its mission is to combat the abuses of the financial industry that began to come to light during the financial crisis of 2008.

The financial industry fought tooth and nail to keep this agency from being born. Now, the financial industry is fighting just as hard to roll back every rule and regulation promulgated by the agency. Among the rules enacted by the Consumer Financial  Protection Bureau is a rule that would prohibit mandatory arbitration clauses in contracts for bank accounts and credit cards and allow consumers to join together in class action lawsuits against banks and credit card companies.

I have written many times about the insidious evil of mandatory arbitration clauses hidden within virtually every contract you sign with a bank, credit card company or a provider of consumer services such as cellphones. These provisions prohibit consumers from taking their complaints to state or federal court and they also prohibit consumers from joining together in a class action case. These provisions are ubiquitous, i.e., they are so prevalent that you don’t really have a choice. As a practical matter, if you sign the contract, your fundamental constitutional right to take your case to court is being taken from you and most consumers are unaware of it.

 

Needless to say, the financial industry loves these contracts. By forcing cases into arbitration and prohibiting class actions, they are able to avoid liability because a single consumer cannot economically justify becoming involved in an expensive arbitration, usually at a distant location, all alone. This amounts to a virtual license to steal small amounts from many, many consumers. As Cordray quotes one judge as saying, “only a lunatic or a fanatic sues for $30.”

Mr. Cordray cites the recent example of the Wells Fargo fraudulent, secret scheme of  opening up multiple bank accounts and credit card accounts for its customers without their knowledge or consent. Many of these customers were harmed by fees and lowered credit scores. Nevertheless, because of mandatory arbitration clauses and anti-class action clauses, Wells Fargo probably will not have to answer to its customers in a court of law. This is an absurd result.

The financial industry is not taking these rules lying down. Their lobbyists went straight to work and they were rewarded by legislation which recently passed the Republican controlled U.S. House of Representatives which will overturn the rule.

While corporations and their political forces take away your rights by saying mandatory arbitration saves precious judicial resources, time, money, etc., what do they do when they have a legal complaint against a customer or another business? They file suit in a court of law and, on occasion, they join forces in a class action. Every single day banks, credit card companies and other corporations file thousands upon thousands of suits against their customers rather than ask for arbitration.

There’s truth in the old saying: “What’s good for the goose is good for the gander.”  This nonsense has to be stopped because “it just ain’t right.”