Several members of the Virginia congressional delegation are calling the Consumer Financial Protection Bureau to take swift action against mandatory arbitration clauses. Those are provisions tucked away into consumer financial contracts that allow corporations to avoid lawsuits.
It all seemed too good to be true. A $3,500 loan – fast and easy – quick cash that would help Mary Lou take her family on a holiday vacation. So she handed over the title to her 2007 Honda Odyssey … only to later discover that the interest rate was 130 percent and that a clause tucked away in contract prevented her from taking TitleMax to court in Fairfax County.
“I tell myself I’ll charge it up to experience and that I’ll never do it again, but I said how many are there who are like me?"
We’ll never know because forced arbitrations happen in secret, beyond the public accountability created in open court. That’s why 40 senators and 65 House members are urging the Consumer Financial Protection Bureau to take swift action. They want to see the bureau adopt a rule proposed back in May that would prohibit consumer financial companies from forcing arbitration in class action lawsuits.
“The new rule is only about class action suits. So it doesn’t completely solve the problem of forced binding arbitration.”
That’s Congressman Don Beyer, a Democrat from Alexandria.
“Just think of employment law, where somebody thinks they have been unfairly fired because they are too old or they are a woman or they are a minority and they’re not enough people in the business to justify a class-action suit. They’d want to be able to sue individually if they could."
Critics of the rule say it’s a full employment act for class action lawyers.
“By taking away arbitration and leaving people in the hands of class action and class action lawyers, you are significantly reducing access to justice."
That’s Andrew Pincus at the U.S. Chamber of Commerce testifying before Congress recently against the rule. He says prohibiting forced arbitration would effectively eliminate arbitration.
“So the rational company is going to say well if the bureau is forcing me to pay this money over here, I’ve got to eliminate this voluntary payment over here much as I like the arbitration system because I can’t do both and keep my costs down."
Not so fast, say supporters of the rule. They say corporations could easily choose to engage in arbitration if they wanted to but that doesn’t happen because they are trying to shield themselves against lawsuits. Deepak Gupta is a class-action lawyer.
“Here we have private legislation being written into the fine print of contracts that we have no choice over and that nullifies the laws we thought that Congress had passed to protect us from banks and from predatory lenders."
Julie Murray at the Public Citizen Litigation Group agrees that the idea that these contracts are voluntary is a mirage.
“You know in reality I think ordinary Americans would say you’re not going to opt out of the banking system. You’re not going to opt out of the only colleges that might accept you. You’re not going to opt out of getting a credit card."
During a House Financial Services Committee hearing on the proposed rule, Jason Johnson at the University of Virginia said the rule was designed to benefit class-action lawyers.
“Sometimes the fees are three, four, eight times what the class actually gets. Imagine if it was an individual lawsuit instead of a class lawsuit. Who would hire a lawyer and say yeah I’m going to recover $100. But I’m going to pay you $800."
Supporters of the rule say now is the time to take action, which is why House and Senate leaders are pressing to the Consumer Financial Protection Bureau to implement the rule immediately — before the fiscal year begins in October.