Financial giants such as Wells Fargo and Equifax are pushing Congress to repeal a new rule by the Consumer Financial Protection Bureau that nullifies forced arbitration clauses in consumer contracts and restores the right of Mainers’ to have their day in court when companies break the law.
Lobbyists for these financial institutions are trying to hide behind Maine’s credit unions and community banks, but no one should be fooled. Credit unions and community banks do not use forced arbitration and have no need to block a rule that restores our right to fight wrongdoings by Wall Street banks, payday lenders, debt collectors and credit bureaus.
The fine print of many consumer contracts takes away our access to the courts. Instead, these contracts provide that you must bring disputes before a private arbitrator approved and often paid by the company, and you can’t team up with others to take on a financial behemoth that has injured thousands or millions.
After Equifax revealed the massive data breach impacting more than 145 million Americans — including 536,436 in Maine (40 percent of the state) — Equifax offered free credit monitoring. But buried in the fine print was a forced arbitration clause banning people from filing a lawsuit or joining a class action “relating in any way to Your relationship with Equifax.” Wells Fargo created 3.5 million fake accounts (217 in Maine) and then used arbitration clauses in real accounts to kick cases out of court and allow the fraud to continue.
The new CFPB rule lets a person resolve disputes by arbitration if he wishes and also restores the choice to band together with others in court. But the U.S. Senate could vote soon to repeal the rule.
Sens. Susan Collins and Angus King have long been independent and thoughtful voices looking out for the interests of Mainers. But Wall Street lobbyists are clearly pushing misinformation and lies.
First, they claim that small institutions will be hurt. The truth is, Maine’s credit unions and small financial institutions do not include forced arbitration provisions in their contracts.
A recent survey of Maine banks and credit unions did not find a single institution with less than $100 billion in assets that puts an arbitration clause in its checking account or credit card agreement. Nor does Maine’s largest bank, TD Bank. Out of 40 financial institutions, only KeyBank ($133 billion in assets) has an arbitration clause in its deposit agreement. For credit cards, none of the 19 credit unions that issues its own card has an arbitration clause, and among banks, only KeyBank does (although some Maine banks and two credit unions offer credit cards issued by Elan Financial Services, which has an arbitration clause in its agreement).
Nationally, a CFPB study found that 97 percent of credit unions do not use arbitration clauses in their credit card contracts and only 8 percent of banks and credit unions — primarily large banks — do for checking accounts.
Credit unions and community banks focus on relationship building and customer service so they don’t need to block their customers’ right to go to court — a right that can help consumers fight predatory lenders that destabilize family finances. Credit unions also understand the importance of teaming up against powerful financial interests: They have filed their own class action against Equifax.
Lobbyists also falsely claim that people recover $5,389 on average in arbitration. But the $5,389 number is based on only 16 people per year who win in arbitration; most lose. Including winners and losers, the average consumer who goes to arbitration has to pay $7,725. And while only 16 people per year win cash in arbitration, 32 million Americans are eligible for relief in class actions.
More than two-thirds of Mainers polled support the CFPB rule to restore their day in court, including a majority of Republicans and respondents who identified as “very conservative.” The Military Coalition, 29 leading service member and veterans groups, and 423 professors in all 50 states also support the CFPB rule.
Lobbyists can be very persuasive when they get someone’s ear. But I hope that the independent and thoughtful voices in the Senate — including both of Maine’s senators — will, instead, listen to the people.
Lois Lupica is the Maine Law Foundation Professor of Law at the University of Maine School of Law in Portland.