Yesterday, at a field hearing in New Mexico, the Consumer Financial Protection Bureau proposed a watershed new rule to stop banks and lenders from using fine print to prevent consumers from banding together in court.
Though most of us don’t even know it, we’ve all signed away our away our rights through forced arbitration clauses, which require consumers to bring any claims in a private, corporate justice system that is completely secret. The CFPB’s proposed rule would do two significant things to level the playing field: prohibit clauses that ban group lawsuits and require companies to disclose what happens in arbitration.
To underscore what’s at stake, let’s recognize forced arbitration for what it really is: a mechanism that quietly transfers giant amounts of wealth from the poor to the rich. As Lina Khan and I explained in our recent ACS issue brief, Arbitration as Wealth Transfer, “the least appreciated effect of arbitration clauses is that companies use this fine print as a license to steal from American consumers.” That should be a cause for widespread alarm.
Between 2008 and 2012, the CFPB found, 422 consumer financial class-action settlements garnered more than $2 billion in cash relief for consumers and more than $600 million in in-kind relief. And those numbers don’t capture the additional benefits of industry-changing injunctions and deterrence of future bad practices.
By contrast, what do consumers get from arbitration? It should be no surprise that few consumers with low-value claims successfully advocate for themselves when forced to seek individual relief. But you might be surprised at how few. Of the hundreds of millions of consumers that interact with banks, credit cards, student loans, payday loans, debt collectors, and other companies regulated by the Bureau, how many do you think have won affirmative relief on small-dollar claims in arbitration? Well, the CFPB’s study found that in 2010 and 2011, for the nation’s leading arbitral forum, the number was just four. Not four million, not 400,000, not even 400. Just four.