Now Who Is A Sad Sick Joke?

by Paul Bland, Executive Director, Public Justice

It has become common knowledge in Washington that, if you want to bury bad news, the best time to do so is on a Friday afternoon, or over a holiday weekend. So it is especially telling that, when it came time to strike at one of the most effective agencies in the federal government, the Trump Administration chose a two-for and announced its plans for the Consumer Financial Protection Bureau on Friday evening over Thanksgiving weekend. While most of the country was (the White House hoped) distracted by black Friday sales and family gatherings, President Trump announced he had installed Mick Mulvaney – who once referred to the CFPB as a “sad sick joke” – as acting director of the agency. The move is just the latest in a long line of Presidential appointments designed to dismantle government agencies from the inside by placing their fiercest critics in charge of their work. But Trump’s move at the CFPB is probably illegal, politically risky, and could backfire in a big way.

While public trust and confidence in the federal government is sagging, to say the least, the CFPB has managed a nearly impossible feat: Both Republican and Democratic voters agree, overwhelmingly, that the agency has an important job and has done it well. That bipartisan support is likely due to the unique independence the agency enjoys, which was a key part of its original plan. By ensuring the Director would not be beholden to the President, Congress also ensured it would be free to take on big banks, payday lenders and Wall Street’s bad actors without fear of political repercussion or retaliation. It allowed former Director Rich Cordray to go after Wells Fargo – to use just one example – even while the bank filled the campaign coffers of candidates from both political parties.

The result has paid very real dividends for consumers. Since its founding, the CFPB has returned $12 billion to consumers cheated, defrauded and wronged by the financial services industry.  It’s a narrative that should play bigly with the President’s campaign promises to look out for the little guy. But the President, instead, has put politics – and Wall Street – ahead of the voters who put him in the White House.

In selecting Mulvaney, who will also retain his position as director of the Office of Management and Budget, Trump has installed his own direct report at the agency, wiping away any sense of independence the CFPB once had. This is flatly contrary to the provisions in Dodd-Frank, the statute that created the CFPB, that require that the head of the Bureau be completely independent (like the Chair of the Fed).  But with a political appointee whose main job (at OMB) is controlled by the President, rather than having the freedom to go after corporations based on what they’ve done wrong, Mulvaney will now undoubtedly have to seek the President’s blessing to do so. And anyone who doubts where Trump’s allegiance is needs only to look at the long line of Wall Street bankers who now hold top positions in his Administration.

That, in turn, leaves little doubt as to why Trump has chosen to appoint – at least for now – an “acting” head of the agency. By doing so, the White House hopes to avoid a Senate confirmation hearing that would almost certainly come with withering questions about the Administration’s assault on an agency that has become increasingly popular among its own voters. But voters deserve those answers, and the White House should not be allowed to use political loopholes as part of its strategy to deliver a death knell to the agency.

In fact, Mulvaney’s appointment is, itself, of questionable legitimacy. Cordray’s Deputy Director at the agency, Leandra English, has filed suit to stop the OMB head from taking over, citing language in the law creating the agency that makes clear the President cannot avoid Senate confirmation of a new Director, and that the Deputy Director (in this case, English) should serve as the agency’s head until the Senate approves a White House nominee. It may be an uphill struggle, but we strongly urge Senators to insist that the Administration begin to respect the idea that the agency serve as an independent watchdog.  If the White House ignores this principle, at least if there are public hearings, those will give the consumers the agency is charged with protecting the option of weighing in with their elected representatives.

Sadly, the President seems intent, instead, on making sure the wolf is put in charge of the hen house, with the apparent goal of making the CFPB the latest casualty in the White House’s war on competence. And while defeating any eventual permanent nominee for the agency may be its own uphill battle, every consumer who feels like Wells Fargo already has enough friends in high places should get ready to fight like hell to protect the last friend the little guys have left in official Washington.  

Forced arbitration is bad for consumers

*This piece originally appeared on the EPI blog.

by Heidi Shierholz, Senior Economist and Director of Policy, Economic Policy Institute

Many financial institutions use forced arbitration clauses in their contracts to block consumers with disputes from banding together in court, instead requiring consumers to argue their cases separately in private arbitration proceedings. Embattled banking giant, Wells Fargo, made headlines by embracing the practice to avoid offering class-wide relief for its practices related to the fraudulent account scandal and another scandal involving alleged unfair overdraft practices.

New data helps illuminate why these banks—and Wells Fargo in particular—prefer forced arbitration to class action lawsuits. We already knew that consumers obtain relief regarding their claims in just 9 percent of disputes, while arbitrators grant companies relief in 93 percent of their claims. But not only do companies win the overwhelming majority of claims when consumers are forced into arbitration—they win big.

Some crucial background helps illustrate the stakes. In July 2017, the Consumer Financial Protection Bureau (CFPB) issued a final rule to restore consumers’ ability to join together in class action lawsuits against financial institutions. Based on five years of careful study, the final rule stems from a congressional directive instructing the agency to study forced arbitration and restrict or ban the practice if it harms consumers.

In recent weeks, members of Congress have introduced legislation to repeal the CFPB rule and take away consumers’ newly restored right to band together in court. Opponents of the rule have suggested that the bureau’s own findings show consumers on average receive greater relief in arbitration ($5,389) than class action lawsuits ($32). As we have previously shown, this is enormously misleading. While the average consumer who wins a claim in arbitration recovers $5,389, this is not even close to a typical consumer outcome. Because consumers win so rarely, the average consumer ends up paying financial institutions in arbitration—a whopping $7,725.

A recent report released by the nonprofit Level Playing Field hones in on Wells Fargo’s use of arbitration in consumer claims. Compiling publicly reported data from the American Arbitration Association (AAA) and JAMS (initially named Judicial Arbitration and Mediation Services, Inc.), the report found that just 250 consumers arbitrated claims with Wells Fargo between 2009 and the first half of 2017.1 This number is surprisingly small, since this period spans the prime years of the bank’s fraudulent account scandal.

But we can take this data a step further by looking at Wells Fargo’s overall gains and losses in arbitration. As one might suspect based on the CFPB data, Wells Fargo indeed won more money in arbitration between 2009 and the first half of 2017 than it paid out to consumers, despite creating 3.5 million fraudulent accounts during that same period.

What is even more troubling is that forced arbitration seems to be significantly more lucrative for Wells Fargo than for other financial institutions. In arbitration with Wells Fargo, the average consumer is ordered to pay the bank nearly $11,000We calculated a mean of $10,826 awarded to the bank across all claims in the Level Playing Field report.

No wonder Wells Fargo prefers forced arbitration to class action lawsuits, which return at least $440 millionafter deducting all attorneys’ fees and court costs, to 6.8 million consumers in an average year. Banning consumer class actions lets financial institutions keep hundreds of millions of dollars that would otherwise go back to harmed consumers—and Wells Fargo seems to have harmed huge numbers of consumers.

Opponents of the CFPB’s arbitration rule argue that allowing consumers to join together in court will increase consumer costs and decrease available credit. Most recently, the Office of the Comptroller of the Currency (OCC) claimed that restoring consumers’ right to join together in court could cause interest rates on credit cards to rise as much as 25 percent.

However, examining the OCC’s study, it appears the agency merely duplicated the conclusion reached by the CFPB and based its 25 percent estimate solely on results it admits are “statistically insignificant at the 95 percent (and 90 percent) confidence level.” In its 2015 study, the CFPB considered this same data and accurately assessed that there was no “statistically significant evidence of an increase in prices among those companies that dropped their arbitration clauses.”

Perhaps more importantly, claims that the arbitration rule will increase consumer and credit costs are also contradicted by real-life experience. Consumers saw no increase in prices after Bank of America, JPMorgan Chase, Capital One, and HSBC dropped their arbitration clauses as a result of court-approved settlements, and mortgage rates did not increase after Congress banned forced arbitration in the mortgage market. Of course, many would argue that banks like Wells Fargo shouldbear any increase in cost associated with making consumers whole for egregious misconduct.

Once again, the numbers are clear: class actions return hundreds of millions in relief to consumers, while forced arbitration pays off big for lawbreakers like Wells Fargo.


1.To my knowledge, AAA and JAMS are the only firms that routinely provide arbitration services to Wells Fargo. In arbitration agreements, Wells Fargo typically designates AAA as the arbitration firm to arbitrate any consumer dispute.