[Congressional Record Volume 163, Number 128 (Friday, July 28, 2017)]
[Extensions of Remarks]
[Pages E1077-E1079]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PROVIDING FOR CONGRESSIONAL DISAPPROVAL OF THE RULE SUBMITTED BY BUREAU
OF CONSUMER FINANCIAL PROTECTION RELATING TO ARBITRATION AGREEMENTS
______
speech of
HON. KEITH ELLISON
of minnesota
in the house of representatives
Tuesday, July 25, 2017
Mr. ELLISON. Mr. Speaker, for far too long, people's legal rights
have been limited by the use of forced arbitration clauses in contracts
for consumer financial products and services. Forced arbitration
clauses, also called mandatory pre-dispute clauses, prevent cheated or
defrauded American consumers from going to court to challenge
wrongdoing by big banks, cell phone providers, auto leasing and auto
financing firms, credit repair, payday lenders, debt collectors and
credit card companies. Most arbitration clauses for financial products
also prohibit consumers from participating in class actions. Forced
arbitration clauses have been opposed by conservatives and
progressives.
Forced arbitration is a secret process where consumers seek redress
at private firms chosen by the financial institution. This rigged
system is why banks and lenders receive more than a million dollars per
year paid out to them by their customers in forced arbitration,
compared to just $86,216 returned to consumers. While advocates for the
financial sector are correct that (sixteen) consumers recover an
average of $5,400 in arbitration every year, they leave out the fact
that banks and lenders receive an average award of $13,195 when they
win--and they win 93 percent of the time. Indeed, a recent report found
that consumers paid more restitution to Wells Fargo in arbitration than
the other way around between 2009 and 2016, the prime years of its fake
account scandal.
After years of effort, the Consumer Financial Protection Bureau
finalized a rule restoring American consumers' right to join together
in court when harmed by systemic and widespread misconduct in the
financial marketplace. The rule does not eliminate forced arbitration,
but it would make individual secret arbitration more transparent by
publishing arbitration complaints and outcomes. It also permits class
action lawsuits.
Instead of celebrating a rule that prevents financial interests from
evading responsibility, Republicans seek to stop this rule under the
Congressional Review Act (CRA). Today, they presented H.J. Res. 111.
It is a vote to prevent consumers from receiving adequate
compensation for fraud, deceptive and predatory practices.
A vote for H.J. Res. 111 is a vote to deny Americans their
constitutional right to access the legal process.
H.J. Res. 111 would protect companies like Wells Fargo that used
arbitration clauses and class action bans to create fraudulent
accounts, overcharge customers with debit fees and mortgages and avoid
responsibility for misconduct. H.J. Res 111 would remove federal
protections for members of the military from evictions and-
repossessions while they are on active duty. And, H.J. Res. 111 would
deny consumers the ability to get fair compensation for harm.
For those reasons, and more, we urge you reject a resolution that
shields companies from responsibility for risky and illegal conduct.
Today is another example to show the American people just how much
Republicans want to rig the system for the powerful. A vote FOR this
resolution is a vote to rig the rules to take money from the pockets of
the American people and put it into the pockets of the financial
sector.
H.J. Res. 111 puts the profits of banks, student loan, car loan and
mobile wireless providers, credit card companies, payday lenders, debt
collectors over the fair treatment of the American people.
How?
For far too long, people's legal rights have been limited by the use
of forced arbitration clauses in contracts for consumer financial
products and services. Forced arbitration clauses, also called
mandatory pre-dispute arbitration clauses, prevent cheated or defrauded
American consumers from going to court to challenge wrongdoing.
If your bank opens a fake account in your name, if your student loan
lender refuses to adjust your loan due to your loss of income, if your
bank re-orders your debit transactions to maximize overdraft fees, it
was frequently impossible for you to join with others to sue the bank
as part of a class action.
But two weeks ago, the Consumer Financial Protection Bureau responded
to demands from consumers and changed the rules to protect consumers.
The Consumer Bureau told banks and lenders they cannot keep their
customers out of court. Class action lawsuits must be allowed. And, the
Consumer Bureau ended the secrecy that surrounds the arbitration
courts. Companies must report court filings, arbitration filings and
rulings.
The vast majority of the American people, consumer groups like the
Consumer Federation of America, the Military Coalition, and even
conservative groups oppose forced arbitration.
A vote AGAINST H.J. Res. 111 is a vote to allow people to receive
adequate compensation for fraud, deceptive and predatory practices.
A vote AGAINST H.J. Res. 111 is a vote to give Americans their
constitutional right to access the legal process.
Please join me in voting against H.J. Res. 111.
I include in the Record various statement of opposition to the joint
resolution.
[From National Consumer Law Center, July 2017]
Summary of CFPB Rule on Forced Arbitration
The Consumer Financial Protection Bureau (CFPB) has issued
a rule addressing the use of forced arbitration clauses in
the fine print of financial contracts. The rule has two
components:
1) Restores consumers' day in court and accountability when
companies engage in widespread violations of the law.
Contracts that have forced arbitration clauses will not be
permitted to ban consumers from banding together by joining
or bringing class actions involving consumer financial
services.
2) Brings transparency to the secretive arbitration
process. Companies that use forced arbitration in individual
cases must report court filings, arbitration claims and
rulings and other information to the CFPB (with identifying
information redacted) so that the CFPB can study the impact
of forced arbitration in individual cases.
The rule applies to the core consumer financial markets
involving lending money, storing money, and moving or
exchanging money. With some exceptions, the rule would cover
most:
Loans and credit, including credit cards, payday loans,
student loans, and auto loans (auto finance companies, not
auto dealers, except some buy-here/pay-here dealers).
Mortgages are already prohibited from having forced
arbitration clauses. Providing leads, referrals, purchasing,
selling and servicing credit are covered.
Bank accounts, prepaid cards, money transfer services and
apps and remittances.
Credit reporting, credit scores, credit monitoring.
Credit repair, debt management, debt settlement, and debt
relief services, including those that purport to avoid
foreclosure. This includes debt relief involving. medical
debt, taxes, and other kinds of debt even if not credit
related.
Check cashing, check collection, check guaranty services.
Auto leases, but not auto dealers who assign their leases.
Debt collection and payment processing related to these
products or services.
Mobile wireless providers that allow third party charges
through the wireless bill.
Key areas that are not covered include:
Auto dealers (other than somebuy-here/pay-here dealers),
such as claims related to discrimination, add-ons, lemon
laws, odometer fraud, or deception about a car's history.
For:profit colleges and trade schools, unless the school
directly makes loans.
Credit cards, bank accounts and other products begun before
the rule goes into effect.
Services offered directly by governments or tribes to
members within their jurisdiction. The rule does apply to
tribal payday lenders who offer products off-reservation.
Investment products and services by entities regulated by
the SEC.
Individuals and others who offer a product or service to 25
or fewer consumers a year.
Nonfinancial products and services, like nursing homes,
cable/mobile providers (except for third party charges on
bills), employers, or store payment plans that don't charge.
The rule applies to new contracts entered into 211 days
after a final rule is published (likely Spring of 2018) and
older contracts that are purchased or acquired after that
date.
[[Page E1078]]
July 25, 2017.
Re OPPOSE H.J. Res. 111, Congressional Review Act resolution
to repeal CFPB arbitration rule and block future reform
of forced arbitration.
House of Representatives,
Washington, DC.
Dear Representative: Americans for Financial Reform and
Public Citizen write to urge your opposition to H.J. Res.
111, the resolution to repeal the Consumer Financial
Protection Bureau (CFPB)'s arbitration rule under the
Congressional Review Act (CRA) and block a similar future
rule to protect consumers. This extreme legislative measure
would harm the public by insulating bad actors from
accountability when they systematically defraud consumers,
and give lawbreakers a competitive edge in the marketplace as
a result.
Based on five years of careful study and consideration
mandated by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, this rule is the result of a
Congressional directive instructing the agency to restrict or
ban forced arbitration if it found the practice harmful to
consumers. The rule centers on two commonsense measures: 1)
it restores the right of consumers to join together in court
by prohibiting class action bans, ensuring consumers can hold
banks accountable for widespread harm, and 2) it brings
transparency to individual arbitration by publishing claims
and outcomes with sensitive information redacted, ensuring
banks can no longer cover up illegal behavior.
According to a 2016 poll conducted by Pew Charitable
Trusts, nearly 90% of consumers want their right to join
together in class action lawsuits restored. Indeed, more than
100,000 individual consumers across the country wrote in to
support the rule during its public comment period, as did the
Military Coalition, representing 5.5 million servicemembers.
Two weeks ago, 310 consumer, civil rights, faith, and labor
organizations wrote to support the final rule.
All available data supports the conclusion that class
action lawsuits hold bad actors accountable and enable harmed
consumers to be made whole. Without the option to join
together, just 25 consumers with claims of less than $1,000
pursue arbitration each year. In contrast, class actions
returned $2.2 billion to 34 million Americans between 2008
and 2012, after deducting attorneys' fees and court costs. An
independent study conducted by a former clerk for Justice
Scalia reached similar conclusions, finding ``even the
harshest critics of consumer class actions would have to
concede that the picture it paints is a fairly successful
one.''
While bank lobbyists suggest that consumers recover more
money in arbitration than class actions, these claims are
misleading at best and brazenly dishonest at worst. Even with
class action bans currently a widespread presence in customer
contracts, available data shows consumers still recover $440
million more in class actions than arbitration every year,
with nearly 7 million consumers receiving cash relief
annually. Class actions also often result in injunctive
relief and systemic reforms that benefit consumers who are
not members of the class.
Big banks and lenders prefer forced arbitration precisely
because the vast majority of consumers cannot and do not
pursue claims in that forum. Though bank lobbyists loudly
proclaim that consumers recover an average of $5,400 in
arbitration, they neglect to mention that this number is
based on just sixteen consumers per year who receive any
relief in arbitration, across all fifty states. Because
arbitration is so time and resource-intensive for consumers
compared to class action lawsuits, the consumers that choose
to pursue arbitration tend to have high-dollar claims backed
by strong evidence--and even these sixteen consumers recover
an average of just nine cents for every dollar claimed.
It is no wonder that the financial industry prefers
arbitration when consumers receive a total of just $86,216
per year. If Wells Fargo had to pay $5,400 each to even a
small percentage of the thousands of customers defrauded in
its fraudulent account scandal, surely it would switch sides
in this debate. But forced arbitration not only allows banks
and lenders to keep millions in illegal profits, it
affirmatively lines their pockets with large awards paid out
by consumers.
The same study that found sixteen consumers recover a total
of $86,216 in arbitration per year also found that banks and
lenders receive more than a million dollars per year paid out
to them by their customers in forced arbitration. While
sixteen consumers recover an average of $5,400 in arbitration
every year, banks and lenders receive an average award of
$13,195 when they win--and they win 93% of the time. Indeed,
a recent report found that consumers paid more restitution to
Wells Fargo in arbitration than the other way around between
2009 and 2016, the prime years of its fake account scandal.
In addition to the high payouts banks and lenders receive
in arbitration, the Wells Fargo scandal demonstrates how
financial companies use secret arbitration proceedings to
keep misconduct out of the public eye. After the CFPB led a
$185 million enforcement action against the bank for opening
as many as 3.5 million fraudulent accounts and credit cards,
reports revealed that customers had been trying to sue Wells
Fargo over fake accounts since at least 2013. Yet the bank's
lawyers used arbitration clauses buried in the fine print of
the customers' other legitimate account contracts to force
allegations of fraud out of public court--and the bank
continued to profit from its illegal scheme for years.
Finally, real-life experience shows that restoring consumer
class action rights will not increase costs or decrease
availability of credit. Consumers saw no increase in price
after Bank of America, JPMorgan Chase, Capital One, and HSBC
dropped their forced arbitration clauses as a result of
court-approved settlements. Similarly, mortgage rates did not
increase after Congress banned forced arbitration in the
mortgage market.
The CFPB arbitration rule will ensure that bad actors
cannot turn fraud into a viable profit model to the detriment
of law abiding institutions, including the many community
banks and credit unions that largely do not include
arbitration clauses in their customer contracts. This new
rule simply allows consumers to enforce rights deemed crucial
by state and federal protections and increases accountability
and transparency, making the financial system stronger and
safer for all of us. We urge you to reject H.J. Res. 111 and
allow this data-driven, commonsense rule to take effect.
Sincerely,
Americans for Financial Reform
& Public Citizen.
____
[From U.S. News and World Report, July 21, 2017]
The GOP's Foolish Decision
(By Dean Clancy)
Those who support overturning the arbitration rule are on
the same side as corporate wrongdoers and sexual harassers.
Minimizing ``lawsuit abuse'' has long been a GOP priority.
But overturning the anti-forced arbitration regulation issued
this week by Consumer Financial Protection Bureau, as
congressional Republican leaders are reportedly rushing to
do, would be a political and policy mistake.
Forced arbitration clauses waive a customer's right to sue
a company in case of a dispute. The fine-print provisions can
be found nowadays in seemingly every contract we agree to,
and every app we download.
Business lobbyists defend the clauses as voluntary
agreements that minimize ``lawsuit abuse'' by ``greedy''
class-action trial attorneys. But in reality, the clauses are
often imposed on consumers without informed consent, and are
increasingly being used to shield corporate wrongdoing.
The new rule protects Americans from the negative effects
of forced arbitration clauses in a host of financial
contracts, such as credit cards, bank accounts and payday
loans. The clauses are already banned in mortgages and real
estate.
News reports suggest the House may vote as soon as next
week on a formal ``resolution of disapproval'' of the CFPB
regulation, which was authorized by Congress in 2010,
formally proposed in 2016 and finalized this week.
A resolution of disapproval enables Congress to kill a
federal regulation within 60 legislative session days
following its formal publication, by means of a quick up-or-
down, simple-majority vote, with no chance of amendment or
filibuster. If the regulation is disapproved by the House,
the Senate and the president, it is dead and may not be
reissued. This procedure has been used successfully to
overturn fourteen regulations to date, all but one of them in
the past six months.
Last week when CFPB announced the new rule, prominent
Beltway Republicans cried foul: Rep. Jeb Hensarling of Texas,
chairman of the powerful House banking committee, denounced
the reg as a ``big, wet kiss'' to the trial lawyers. Sen. Tom
Cotton of Arkansas vowed to kill the regulation swiftly.
The U.S. Chamber of Commerce urged Congress to kill not
only this regulation, but every CFPB rule, on grounds the
agency is unconstitutional and and therefore all of its
actions are invalid.
The GOP would be terribly foolish to go down this road, for
three reasons. Forced arbitration is: (1) unconscionable; (2)
unconstitutional and (3) a big political loser.
1. Unconscionable. Here are some examples of the kind of
behavior CFPB's reg is trying to prevent.
Wells Fargo Bank admitted its employees systematically
created millions of sham bank accounts in its customers'
names, and then in many cases fraudulently billed those same
customers for fees and services they never agreed to.
Executives of the megabank knew this was happening but did
nothing. Then, they decided to blame 5,300 ``rogue employees,
who were summarily fired. Now, to ward off thousands of
lawsuits, the company is hiding behind binding arbitration
clauses in its victims' contracts.
Roger Ailes, the now-deceased executive of Fox News, was
accused, before his death, by multiple female employees of
sexual harassment. To keep the women's allegations out of
court, and to forestall a long line of past accusers from
taking the witness stand, he invoked clauses in his
employees' hiring contracts requiring any disputes be handled
through a private, highly secretive arbitration process.
Military readiness has been negatively affected by
unscrupulous payday lenders who prey on military
servicemembers and veterans. The victims become overly
indebted thanks to exorbitant interest rates and hidden fees
they don't understand, and then find themselves unable to
obtain relief thanks to forced-arbitration clauses. Because
of this,
[[Page E1079]]
the Military Coalition, which represents nearly 6 million
uniformed service members, veterans and their families, has
formally petitioned Congress to ban the clauses.
2. Unconstitutional. Question: If binding arbitration
clauses are so bad, why are they so common? Because a series
of Supreme Court rulings (the most recent one in May) have
effectively overturned the traditional common-law
understanding of arbitration. In past centuries, arbitration
was understood as a voluntary option that is fair only when
both parties are of roughly equal bargaining power or else
have agreed to it freely after a dispute has arisen.
In lieu of that reasonable understanding, the Court has
substituted a doctrinaire ``right of contract'' that allows a
powerful party to effectively force a weaker party to waive
his or her constitutional right to sue, before a dispute has
arisen and often without informed consent. This
transformation defies common sense and severely weakens
Americans' Seventh Amendment right to a jury trial.
Today, arbitration has devolved into a private star-chamber
that's stacked in favor of the accused corporation--which,
unsurprisingly, usually wins.
Is the CFPB itself unconstitutional? Yes, in my opinion.
But so is forced arbitration. And Congress has a duty to
protect our right to a jury trial.
Instead of lashing out at the agency by overturning this
regulation, Congress should do the right thing and amend the
Federal Arbitration Act to make binding arbitration
agreements truly voluntary for all Americans, as the
Constitution requires. Having done so, it could then, at its
leisure, reform (or, as I would prefer, abolish) the
controversial agency.
3. A Political Loser. Those who vote to overturn the CFPB
regulation will be placing themselves on the side of accused
sexual harassers, corporate wrongdoers and unscrupulous
payday lenders who exploit our troops.
If Republicans are politically sensible--or just have an
ounce of self-respect--they'll take the high road and let
this reasonable rule stand.
____________________