On November 12, 1999, 16 years ago today, a longtime banking safety law known as the Glass-Steagall Act was effectively repealed when President Bill Clinton signed the Gramm-Leach-Bliley Act. The original Glass-Steagall law was passed in 1933 in response to the Wall Street crash of 1929 which led to the Great Depression. Its purpose was to build a wall between commercial and investment banking in order to prevent banks from using taxpayer-backed deposits to make risky investments. Much of the repeal came from regulatory decisions dating from the 1980s, but the 1999 law completed the task.
In the decades following Glass-Steagall, the nation enjoyed relative financial tranquility. Within a half-decade after the repeal of Glass-Steagall, Wall Street recklessness caused a crash that left a $12+ trillion hole in the economy.
The need to revive the “Safety Glass” separation between commercial and investment banking has been in the news quite a bit recently — for good reason. The nation’s biggest banks are bigger than ever and the risk of a financial meltdown and government bailouts to banks considered to be “too big to fail” is still all too present.
U.S. Senators Elizabeth Warren (D-Mass.) and John McCain (R-Ariz.) reintroduced their bipartisan “21st Century Glass-Steagall Act” legislation in July and bipartisan companion legislation was introduced in the House as well.
The New York Times has published a devastating three-part exposé by reporters Jessica Silver-Greenberg, Robert Gebeloff and Michael Corkery showing the gory details of how corporations use the fine print of take-it-or-leave-it terms to deny consumer rights.
These forced arbitration clauses block ripped-off consumers from holding corporations accountable in a court. Instead, consumers are routed into the rigged system of private arbitration, where decisions are in the hands of corporations’ handpicked arbitrators instead of impartial judges. These arbitrators, who depend on the corporations who set these terms for repeat business, have every incentive to rule against consumers. Their rulings are final – they are not required to allow appeals. Appallingly, there is no public record of these decisions, and they do not have follow precedent or the law.
Even worse, forced arbitration clauses buried in the fine print increasingly ban class-action lawsuits. This makes these terms a “get out of jail free card” for corporations with large numbers of customers, who can get away with small-dollar rip-offs. Customers of a company that uses a forced arbitration clause to ban class actions have no means for collective action against unfair charges.
There are matters that complement the core ideology of all political parties so well that lawmakers across the political spectrum should be working hand-in-hand to achieve the policies. The Arbitration Fairness Act and the Court Legal Access and Student Support (CLASS) Act, which would restore public’s rights to hold wrongdoing corporations accountable in court, are examples of exactly the kind of legislation that should transcend the partisan divide. And yet, partisanship has been a continuous roadblock to their implementation.
So let’s start by reviewing forced arbitration clauses and their devastating consequences for the constituents of all party affiliations. If you’re asking yourself, “What’s forced arbitration?” you’re certainly not alone. According to a recent study conducted by the Consumer Financial Protection Bureau (CFPB), three-quarters of respondents who understood the meaning of forced arbitration did not know whether their credit card contract contained a forced arbitration clause and a mere 7 percent of respondents whose credit card agreements did contain forced arbitration clauses correctly understood that they could not sue in court. These are startling findings considering that the CFPB’s study also found that the vast majority of prepaid card companies, private student loan lenders, and cell phone providers, and the list goes on, include a forced arbitration clause in their terms. These clauses block consumers’ access to public court and force harmed consumers into inherently biased and secretive arbitration proceedings as a condition for obtaining services.
And financial services consumers aren’t the only targeted group – most ordinary Americans are affected by arbitration clauses, as they are often forced upon employees, small businesses, nursing home residents, and college students, to name just a few.
Now, you may be asking, can arbitration clauses really be that bad? Well, forced arbitration:
1. Robs Ordinary Americans of their Hard-Earned Cash
Note: The live online conversation will begin on Wednesday, July 22, at 3 p.m. Eastern.
At Public Citizen, we fight to keep the courthouse doors open to consumers harmed by Big Business.
But we’re up against a threat to our core democratic values – forced arbitration, a pernicious legal tactic developed by corporations to keep you out of the court and out of their way.
Buried in everyday contracts for products, services and jobs is fine print that says if you are harmed, you can’t go to court – which means you can’t go before an impartial judge or jury. Instead, you must settle your dispute in a private arbitration proceeding or not at all. That’s why we’re working with the Alliance for Justice and other allies to spread the word about forced arbitration and discuss ways to fight back.
Join the online conversation today at 3 p.m. Eastern to see Christine Hines, consumer and civil justice counsel for Public Citizen’s Congress Watch division, discuss this critical issue with other experts.
Watch the live conversation here (the video stream will start at 3 p.m. on July 22):
Bankers crashed the economy six years ago. Congress approved reform exactly five years ago to deal with the fallout. Yet the Securities and Exchange Commission (SEC) and our other regulatory watchdogs have yet to erect many of the guard rails needed to prevent another calamity.
Title 9 of the Dodd-Frank Wall Street reform Act is focused on reigning in out of control Wall Street executive pay practices — those misplaced incentives that pushed bankers pursuing larger bonuses and rewards to take some of the riskiest gambles in the lead up to the crash. This reform made the SEC (and other agencies) responsible for creating a host of important corporate governance rulemakings — including disclosure requirements, clawbacks, changing the structure of bonus pay completely and correcting the system that incentivizes systemically risky behaviors with dangerous market consequences.
Unfortunately, we have seen stark delays in the bulk of these rulemakings, including some that seem to most to be outrageously simple. Chief among these is the long-delayed executive-compensation rule requiring that companies disclose the pay gap between chief executives and their employees. The agency proposed the rule in 2013 but has yet to complete it.