Sep 14, 2022 - Economy

Riding #MeToo coattails, a new push to limit banks' use of secret courts

Abstract illustration of bits of money and a tilted scale of justice.

Illustration: Aïda Amer/Axios

More than 110 consumer advocate groups sent a letter Tuesday urging the Consumer Financial Protection Bureau to limit banks' and other financial services companies' ability to force customers with legal complaints into arbitration — essentially a private courtroom, outside the public view.

Why it matters: The groups, which include organized labor, civil rights organizations like the ACLU and NAACP and all of the major consumer protection outfits, are riding the momentum from landmark workplace legislation passed earlier this year that bans companies from forcing sexual harassment and assault claims into arbitration.

  • Consumers are often blocked from suing banks — even when real harm's been done.
  • For example: After Wells Fargo employees opened up checking and credit card accounts for customers without their knowledge — ruining some folks' credit scores in the process — those people couldn't take the bank to court.
  • The banks typically prevail in arbitration, studies have found. A new report from the American Association for Justice finds that the win rate for consumers against banks and financial services companies was just 1.8% from 2017-2021.

What they're saying: “Given how deeply embedded basic financial services are in consumers’ everyday lives, it is essential that consumers have the ability to vindicate their rights in court, whether as individuals or as part of a group,” the advocacy groups write in the CFPB letter, shared exclusively with Axios.

  • The letter specifically cites the “Ending Forced Arbitration for Sexual Assault and Harassment Act,” which passed with bipartisan support in February. The law "further underscored how unfair and insidious forced arbitration is and how unpopular it is with the vast majority of the American public," they write.
  • In an email, a CFPB spokesperson said the agency received the letter and is reviewing it. "[W]e appreciate the organizations' interest in this important issue."

The big picture: The CFPB has authority to regulate the practice under the 2010 Dodd-Frank law, as the agency noted in a 2015 report. But efforts to do just that were killed by the Senate in 2019 — with vice-president Mike Pence casting the tie-breaking vote. Now, with a more friendly White House, and a Democratic majority in Congress — they’re hoping to push this across the finish line.

  • Consumer advocates say the practice causes major headaches for consumers, who are unable to remedy harms caused by these institutions — like mistakes on credit reports.
  • Often what happens is that someone has a big error on a credit report, tries to solve it with one of the agencies and hits a roadblock, says David Chami, an attorney who litigates these kinds of cases. The ding on their credit means they could miss out on buying a home, or face higher rates for a mortgage or auto loan.
  • Because arbitration is more costly and these cases take longer for him to handle, Chami turns away many complaints. "There are often customers who don't get any relief," he says.

Yes, but: Defenders of arbitration say it's less costly and more efficient.

What to watch: Whether the push against forced arbitration spreads to more industries or types of complaints. Workers can still be forced into arbitration when they file complaints of racial discrimination, for example.

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