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Give consumers their day in court: hold financial services accountable

By Charlene Crowell
On July 21, 2016

(TriceEdneyWire.com) – Whenever consumers open a new credit account, borrow a loan or begin contract financial services, it’s a sure bet that there will be a lot of terms and requirements that appear in print so small one would need a magnifying glass to read it. Others may become bewildered by the legal jargon embedded in these agreements.

If you’ve had that kind of experience, keep reading.

Within all the fine print and legal nomenclature, you may very well have agreed – without knowing – to give up your right to sue. This practice, known as “forced arbitration,” denies dissatisfied consumers the right to sue for suspected illegal financial services. Instead, consumers must take up their problems with a mediator who is selected and paid by the financial provider. Whatever the mediator decides, the consumer must accept. Further, forced arbitration denies any judicial review of the arbitrator’s decision.

These arbitration clauses are often found in credit agreements for a wide range of services including mobile wireless, private student loans, credit cards and checking accounts.

If you think consumers deserve better, you have a lot of company. A new national poll found that nearly two-thirds of likely voters – 63 percent – support reforming consumers’ rights to take legal action against banks and other financial service providers that break the law. After hearing arguments for and against consumers’ rights to sue, respondents were largely united across partisan lines.

The release of findings coincided with a July 6, floor action in the House of Representatives that decided a multi-agency appropriations bill. The bill also included riders to strip the Consumer Financial Protection Bureau (CFPB) of its authority to act on forced arbitration.

Representatives Keith Ellison (MN-5th) and Hank Johnson (GA-4th) jointly proposed an amendment to strip the forced arbitration language from the bill. Unfortunately, the pro-consumer amendment failed. At press time, a full House vote had not yet been taken.

Additionally, in 2010 and as part of the Dodd-Frank Wall Street Reform Act, Congress directed CFPB to conduct a study and provide a report on the use of pre-dispute arbitration clauses in consumer financial contracts. Dodd-Frank also banned the use of arbitration clauses in most residential mortgage loans. Even earlier in 2007, the issue of arbitration’s effects on consumers was brought before Congress when it enacted the Military Lending Act.

In preparation for the proposed rule, CFPB extensively studied the effects of forced arbitration. Checking accounts, credit cards, mobile wireless providers, payday loans and prepaid cards were the six financial markets that CFPB analyzed. Its study findings revealed that:

  • Credit terms are seldom negotiable. Only in a few instances are consumers given a one-time chance to opt out of these terms;
  • From 2008-2012, 34 million consumers received a total of $2.2 billion in cash payments from $2.7 billion of gross relief in class actions; the balance of monies went to pay attorneys’ fees and litigation costs; and
  • Without the option to join together in a class action, only 25 consumers with claims of less than $1,000 pursued arbitration annually.

The new consumer poll, commissioned jointly by the Center for Responsible Lending (CRL) and Americans for Financial Reform (AFR), was taken by Lake Research Partners and Chesapeake Beach Consulting.

“We are glad to see such clear bipartisan support for consumers’ right to come together to take on widespread abusive practices,” said Lisa Donner, Executive Director of Americans for Financial Reform. “Forced arbitration and bans on class actions give Wall Street a ‘get out of jail’ free card, and these findings reinforce other data showing widespread support for corporate accountability.”

“Any consumer who believes that the financial services they received were illegal,” said Mike Calhoun, CRL president, “deserves to have their day in court. Currently, many do not have that option.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

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