Archive for the ‘Consumer Protection’ Category

In May, the Consumer Financial Protection Bureau (CFPB) announced they wanted feedback on their plan to curb forced arbitration clauses.

binding-contract-948442_640Public Citizen members sent a remarkable 27,890 comments to the CFPB. Once they are added in, our members alone will have tripled the total amount of comments (based on the numbers reported by CFPB’s website around Monday’s closing deadline).

For such a previously under-the-radar issue, this is a huge accomplishment.

Forced arbitration is the latest trick corporations are using to avoid accountability and keep consumer complaints out of public courts. Public Citizen calls them rip-off clauses, because the fine print has crept into contracts everywhere, from Amazon to Chase to Pokémon Go. Consumers are unknowingly signing away their rights to take future complaints to court. Instead, they’re decided by private companies or individuals chosen by the corporation in a kangaroo-court called an arbitration proceeding.

The problem doesn’t end there. Often these rip-off clauses also prevent consumers from joining together in a class action lawsuit. This is critical, because it often doesn’t make sense for consumers to fight companies alone when potential damages are small. Take for example James Pendergast, who was charged $20 by Sprint for “roaming” while he was in his house.  A lawyer told him the case would take six figures to take to trial and there was the possibility he would be on the hook for Sprint’s legal bills. Almost no one would take on such a small dollar case by themselves; which is why class action suits are an important tool for consumers to band together to level the playing field.

We applaud the steps being taken by CFPB Director Richard Cordray and his staff (urged on by our members’ call to action) to ban forced arbitration language from financial services consumer contracts.

Unfortunately, the theme of deregulating Wall Street comes up time and time again and this election cycle has been no exception. That’s a very irresponsible attitude when Americans are still struggling from the impacts of the Great Recession. We need more financial protections, not less.

Image via Flickr user Russ Allison Loar.

Image via Flickr user Russ Allison Loar.

Public Citizen fought alongside Senator Elizabeth Warren and our partners across the country to enact Wall Street reform legislation but it fell short and left out some key changes to rein-in harmful financial practices, like high-speed trading on the stock market. Now is the time to push for change that can stop the reckless activities of Wall Street traders.

That’s why Public Citizen supports the Wall Street Speculation Tax. Originally introduced in the U.S. in 1914, the tax was doubled as a way to speed economic recovery after the Great Depression, Public Citizen wants the United States to rejoin the around 40 countries that currently have some form of taxes on financial transactions like Wall Street trades.

As a member of the Take on Wall Street campaign, Public Citizen continues to call on Congress to make policy changes that will help cut back on some of the worst of Wall Street’s greed and excesses. Reinstating a tax on Wall Street trades is an essential part of the prescription to making the market work for Main Street and average investors. And, with the Wall Street Speculation Tax, the traders responsible for the 2008 crash would begin to repay their debt to society.

What is the Wall Street Speculation Tax?

Also known as a financial transaction tax or Robin Hood tax, the Wall Street Speculation Tax would add a fee to Wall Street trades such as stocks, bonds, and other financial instruments. Legislative proposals vary, but typically the fee would equal a few cents per hundred dollars traded, but would raise tens billions of dollars per year of revenue that could be spent on education and create jobs while reducing dangerous financial market speculation.

Who supports the Wall Street Speculation Tax?

Business leaders and financial industry professionals like Bill Gates, Warren Buffett, former Federal Deposit Insurance Corp. chair Sheila Bair and Vanguard founder John Bogle have all given their support to the Wall Street Speculation Tax. Labor unions like the Communications Workers of America and the AFL­CIO and environmental and faith groups like Friends of the Earth and NETWORK (the “Nuns on the Bus” group) have also added their voices to the growing number of organizations and individuals seeking to curb reckless Wall Street speculation.

What can I do?

Take action at TakeOnWallSt.com to sign a petition to tell Congress to reform our markets, including by passing a Wall Street Speculation Tax. Or, you can like the campaign on Facebook.

We hope that you’ll join with Public Citizen and our partners in this next phase of Wall Street reform!

Post by recently matriculated Public Citizen intern Amanda Bragg. Thanks, Amanda!

noripoffclause-longYesterday marked the end of the public comment period on the CFPB’s proposed rule to restrict forced arbitration – a tactic that allows Wall Street banks and predatory lenders to block consumers from challenging illegal behavior in court.

Over the last three months, the rule has generated at least 100,000 supportive comments from individual consumers across the country, as well as strong endorsements from major groups and leaders. Here are some excerpts from a selection of notable comment letters, statements of key leaders, and major editorials supporting the Bureau’s proposal.

Notable Comment Letters

281 consumer, civil rights, labor, and small business groups strongly support the rule

“The CFPB rule, which will restore consumers’ ability to band together in court to pursue claims, is a significant step forward in the ongoing fight to curb predatory practices in consumer financial products and services and to make these markets fairer and safer…

“Because forced arbitration undermines compliance with laws and creates an uneven playing field between corporations that use forced arbitration and those that allow for greater consumer choice in dispute resolution, it is in the public interest and in the interest of consumer protection to prohibit or strictly curtail the use of forced arbitration clauses in consumer financial contracts.”

38 U.S. Senators commend CFPB for proposed rule, led by Minority Leader Reid and Senators Franken, Brown, and Leahy

“Recognizing the urgent need to address these troubling practices, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010 to improve accountability, strengthen the financial system, and establish the CFPB. Dodd-Frank included several restrictions on the use of forced arbitration, including a mandate for the CFPB to take action on arbitration. Under Section 1028 of Dodd-Frank, Congress specifically directed the CFPB to study the use of forced arbitration in connection with the offering of consumer financial products and services, and authorized it to ‘prohibit or impose conditions or limitations on the use of’ such agreements based on the study results.”

65 members of the U.S. House of Representatives praise rule, led by Reps. Waters, Conyers, and Johnson

“Consistent with the Bureau’s exhaustive study on forced arbitration, which found that forced arbitration restricts consumers’ access to relief in disputes with financial service providers by limiting class actions, the proposed rule is a critical step to protect the public interest by ensuring that consumers receive redress for systemic unlawful conduct.

“There is overwhelming evidence that class-action waivers in financial products and services agreements undermine the public interest. Originally used primarily in commercial settings, forced arbitration clauses have proliferated in everyday consumer contracts, and are now prevalent in financial services agreements.”

18 state attorneys general support action to extend reach of state enforcement efforts

“Although we believe consumers will be best served by the total prohibition of mandatory, pre-dispute clauses in consumer financial contracts and we encourage the Bureau to consider regulations to that effect, the Proposed Rules provide a substantial benefit to consumers by restoring their fundamental right to join together to be heard in court when common disputes arise in the commercial marketplace. Many of our respective consumer protection laws include private right of action provisions, the purpose of which is to complement and extend the reach of our state enforcement efforts.”

210 law professors and scholars “heartily endorse” the proposed rule

“We believe that the proposed regulations are critically important to protect consumers and serve the interests of the American public… to the extent we allow financial services companies to use arbitration to eradicate consumer class actions, we are allowing these companies to insulate themselves from enforcement of our laws. This harms not only individual consumers but also the public at large.”

 

Support from Key Leaders

The White House: Three Big Reasons You Should be Fired Up About Today’s Announcement to Protect Consumers
“Actions like today’s are why the President fought so hard to create the CFPB through Wall Street reform. And there are major, tangible signs it’s working—with stronger protections in mortgage markets, student loans, and credit cards. Tens of millions more Americans would be protected by today’s proposal. And CFPB has recovered nearly $11 billion for more than 25 million consumers through enforcement actions.
“Given how many millions of Americans are being protected by the CFPB rules already in place and the importance of the work ahead, it’s appalling that Republicans are trying to repeal CFPB in its entirety. In this year’s House Republican Budget plan, they proposed getting rid of the CFPB. That’s completely unacceptable.” 

Hillary Clinton Supports Ending Forced Arbitration ׀ Time
“‘With today’s proposal, the Consumer Financial Protection Bureau takes aim at yet another unfair practice on Wall Street,’ Clinton said. ‘Mandatory arbitration clauses buried deep in contracts for credit cards, student loans, and more prevent American consumers from having their day in court when they’ve been harmed.’”

 

Major Editorial Endorsements

Consumers have a right to go to court ׀ Boston Globe

“The firms have all but blocked the path to class-action lawsuits. That is a moneymaker for them. Route consumers into arbitration, and they essentially are on their own, each to fend against a powerful financial house. No surprise that few consumers take up the expensive fight.

“… If arbitration has been rendered ineffective through the structure of contracts, consumers lack tools to check corporate excesses. Arbitration clauses typically have carried provisions barring consumers from even talking about their claims.

“That factor of secrecy reinforces how the option of a class-action lawsuit becomes necessary to deter deceitful practices and ensure accountability.”

 

Bank customers get a fighting chance  ׀The New York Times
“Justice demands no less. A series of articles in The Times last year found that prohibiting class-action lawsuits typically results in consumers simply giving up in cases of overcharging. Private arbitration is no alternative to a day in court, because corporations effectively control the process, including the choice of the arbitrator and the rules of evidence.

“…That insult is a sign that opponents have no good arguments. The ban on class-action lawsuits is a hallmark of the anti-regulatory, anything-goes era that culminated in the financial crisis. Changing entrenched attitudes and practices has been a slow process, but the proposed new rules represent progress. Mr. Cordray and the consumer bureau are serving the public as the law requires.”

 

A fair shake for consumers ׀ San Francisco Chronicle

“Few customers read the fine print on credit card and bank agreements when it comes to settling disputes. If consumers want a loan or card, they have to agree to take their claims to an arbitrator, a path that sidesteps the courts and class action lawsuits that might cost Wall Street billions.

“…The real purpose of the small-type agreements is to save banks and lenders from a challenge brought by pools of unhappy customers filing class action suits in the name of broad ranks of gouged consumers. If successful, such lawsuits can run into millions, instead of the paltry sums doled out by arbitration.”

For more information, contact Amanda Werner, awerner@ourfinancialsecurity.org, (202) 973-8004.

Bart Naylor at Too Big launchOn June 22, Public Citizen was joined by U.S. Senator Jeff Merkley from Oregon, former congressman Brad Miller of North Carolina, MIT Professor Simon Johnson, University of Maryland Professor Rena Steinzor, and Marcus Stanley of Americans for Financial Reform to celebrate the release of Public Citizen’s latest publication. Too Big: The Mega-Banks Are Too Big to Fail, Too Big to Jail, and Too Big to Manage lays out the reasons why the current regulatory system has allowed mega-banks to remain too large.

Too Big immediately pinpoints the threat to American citizens’ interests as big banks continue to operate without adequate regulation:

“Americans suffered from the financial crisis of the 2008. Adding insult to injury, Americans were compelled to finance bailouts of banks responsible for the crash on the theory that permitting any to fail would cause a cascade of bankruptcies and inflict cataclysmic damage to the economy.

Yet today, the largest banks are even bigger than they were then.”

The book, by Bart Naylor, Public Citizen’s Congress Watch division’s financial policy advocate, focuses on commonsense solutions, in the form of regulatory and legislative reforms, to stem the unencumbered power and greed of the mega-banks.

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On May 11, JP Morgan CEO James Dimon called the president of the nation’s community bank trade association a “jerk” in a live interview. Dimon characterized Camden Fine of the Independent Bankers Association of America in this way following Fine’s assertion that the ill-regarded mega-banks hid behind better-regarded community banks for political cover when lobbying for deregulation.

chaseNOPublic Citizen has voiced critiques similar to Fine’s about the mega-banks. Indeed, Public Citizen urges JP Morgan’s break-up, and filed a shareholder resolution calling on a study of this idea.  So when I attended the May 17 annual meeting of JP Morgan, I expected to draw some colorful rejoinders from CEO Dimon. Instead, the meeting in New Orleans, LA, known to locals as NOLA, was a meeting of “no.”

There was no name calling. In fact, CEO Dimon declared in his prepared remarks that the bank should be less defensive with public criticism. And he declared his firm squarely on the path of moral rectitude, and that misconduct would not be tolerated. He also described the company’s record financial results.

His remarks, which he read at a pace similar to the TV advertisement legal disclaimer for Cialis’ side effects, were a synopsis of his 50-page defense that opens JPMorgan’s annual report.

The comforting words regarding conduct were dissonant with the lengthy rap sheet of recent settlements for claims of misconduct at JPMorgan. They were also dissonant with the meeting venue, which was New Orleans’ Bourbon St. Shareholders attending the meeting needed to slalom there through people sleeping on the sidewalk either because they couldn’t find their way home, or they didn’t have a home; passed strip clubs open for business at 9:30 a.m.; and under awnings advertising alcoholic beverages that you’re welcome to sip on the street.

There was also no victory for shareholders hoping for some basic reforms through six separate proposals that constituted the core of this annual meeting. Public Citizen advanced one of these—the break-up study—and I introduced four others as a courtesy to the proponents who wanted to spare themselves travel expenses. Voting shareholders turned down all these proposals. Partly this is explained by the fact that 13 percent of the shareholders didn’t vote. Most voters are institutions tied into JP Morgan and other banks. Of course it didn’t help that the company uses language that confuses– the ballot didn’t actually say “break-up study,” but “shareholder value committee,” which an institutional voter sifting through hundreds of annual meeting ballots might dismiss as another expensive, needless distraction. Andrew Ackerman of the Wall Street Journal has explored this clever dodge.

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