Tag: Arbitration Clauses

New CFPB rulemaking on arbitration clauses may be delayed by the House

The Consumer Financial Protection Bureau (CFPB) has a government block to the new rulemaking that would carve out specific language allowing consumers access to the courts, instead of otherwise being bound by mandatory arbitration agreements in contracts among consumers and financial institutions. The House Financial Services Appropriations Subcommittee is marking up the bill to fund the CFPB,[i] Until spending bills are passed, the CFPB is prohibited from issuing the final rulemaking language in its regulations regarding mandatory arbitration agreements.

As we reported in our article last week, THE CFPB ANNOUNCES NEWS OF POSSIBLE RULEMAKING TO GET AROUND ARBITRATION AGREEMENTS, the CFPB “was considering whether to ban arbitration agreements from being used to compel arbitration of consumer class actions and whether to require the reporting of certain information concerning consumer arbitrations to the Bureau to facilitate monitoring.[ii]

CFPB Rulemaking is on hold due to the House Appropriations Committee, its process and requirements.

In the draft of the Appropriations Committee spending bill, there are certain requirements the CFPB must satisfy before any proposed new rules can be issued. The Appropriations Committee also wants the CFPB to change its current form of governance, from a single agency director, to a board of directors, which has been previously proposed.

The proposed new rule would allow consumers to file lawsuits against financial institutions, including credit unions, if they engage in wrongdoing. The rule cures the current problem where consumers are limited to binding arbitration clauses, making litigation and class action lawsuits unavailable as stated in the arbitration clauses many consumers never read nor knew they were accepting.

Some challenge the CFPB and its motivation for arbitration rulemaking, opening the door for consumers to sue financial institutions.

There are disagreements among legal scholars as to whether arbitration is more or less helpful to consumers, when other options include joining class action lawsuits. While critics cite the smaller dollar amounts awarded to consumers when they join together in suing a financial institution, individual arbitration decisions are more like a cost of doing business, than they are a legitimate threat to a large financial institution. Class action lawsuits have the teeth to affect these big banks and can force them to change their conduct and policies.

The CFPB conducted its own studies and released them to Congress: Arbitration Study, Report to Congress, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028 (a). The 728-page study examined data concerning the pre-dispute arbitration process, to determine whether consumer rights and remedies are unfairly restricted.

Critics of the CFPB’s proposed rules, suggest that its report to Congress is slanted to favor the CFPB in allowing more consumers to sue financial institutions through the Bureau, whose job is to enforce consumer rights laws and take action against predatory companies. Meanwhile, supporters of the new rules agree that allowing consumers to join class actions or individually sue financial institutions is the proper way to facilitate justice, as opposed to being restricted by arbitration agreements preventing individuals from having their day in court.

While the Appropriations Committee works on its markup of the spending bill and the requirements of the CFPB in arbitration rulemaking, financial institutions continue using arbitration clauses to block access to courts. The new CFPB arbitration rules are likely to take effect in 2017.

The Zamparo Law Group, P.C. is a consumer protection law and litigation firm, representing consumer plaintiffs. Zamparo Law Group in the northwest suburbs of Chicago sues and wins against the companies who refuse to follow the law.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our FacebookTwitter and LinkedIn pages. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] Credit Union Times, House Bill Would Delay CFPB Arbitration Rules, By David Bauman, May 24, 2016

[ii] Consumer Financial Protection Bureau, Spring 2016 Rulemaking Agenda, Current Initiatives, Arbitration

Image Source: House Appropriations Committee http://1.usa.gov/1ptJEtv

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Proposed Legislation: The Restoring Statutory Rights Act

Senators Patrick Leahy (D-Vt.) and Al Franken (D-Minn.) introduced new law to correct the unfair impact of forced arbitration clauses on consumers. There are several reasons consumers are gravely disadvantaged when large companies and service providers easily win in arbitration. Forced arbitration agreements are derived in concept from the Federal Arbitration Act (FAA), enacted in 1925. The FAA was not originally intended to be used to compel consumers to settle disputes in arbitration when they would otherwise have access to the courts. The new law, the Restoring Statutory Rights Act, would protect consumers and change the course of the law. This legislation is timely and many consumer rights advocates are upset by the recent U.S. Supreme Court (SCOTUS) decisions upholding forced arbitration agreements imposed on consumers.

Consumers are significantly disadvantaged by forced arbitration clauses.

Forced arbitration clauses are found in the fine print of contracts, in click through agreements online, and in the literature sometimes included in a consumer’s monthly billing statement. In many cases, the consumer is never asked whether they voluntarily consent to having any disputes settled in binding arbitration. Simply by continuing to use a service or make payments on a home or car, the consumer may be consenting to the arbitration clause. Most consumers are unaware that they are limited in arbitration and they will never see a courtroom or judge, even if they have a significant complaint against the lender or service provider seeking to collect a disputed amount of money. In one case we wrote about in Arbitration clauses prevent consumers from suing in court, but might not end the fight, a consumer was sued and lost in arbitration over a debt he did not owe.

Adding another layer of disadvantage on the consumer, the companies writing forced arbitration clauses into their consumer agreements are also the ones to select the panel of arbitrators. There are limits on the rules of law and procedure in arbitration. There is no jury in arbitration, no elected or appointed judge, simply a panel of arbitrators who are not necessarily lawyers or people with legal experience.

The Federal Arbitration Act was never intended to force individual consumers into arbitration.

The FAA statute was written to help companies with equal bargaining power an opportunity to use voluntary arbitration for dispute resolution.[i] The law was not written to compel individual consumers to arbitration, especially when they are forced into arbitration by a clause in the fine print they never read. Recent SCOTUS decisions interpreted the FAA statute as applying to individual consumers who are forced to settle disputes in arbitration and have no right to go to court with their own claims against consumer protection violations or other wrongdoing by the company suing them.

The Restoring Statutory Rights Act could protect consumers from binding arbitration.

Congress is asked to pass the Restoring Statutory Rights Act[ii] to redirect a legal path going in the wrong direction, in the opinion of its authors and supporters.[iii] Lobbying for the necessary changes in the law to protect consumers from abusive and unfair collection practices and lawsuits, there will likely be strong support for this proposed legislation among individual consumers and small business owners. The new law would directly correct some of the current problems and inequities in arbitration.

  1. The Restoring Statutory Rights Act would make claims by individuals and small businesses, arising out of violations of state or federal law or constitution, exempt from the FAA statute, allowing these claims to proceed in a traditional court of law.
  2. State and federal courts can apply the laws in their jurisdictions to contract interpretations, arbitration clauses and challenges to the enforceability of forced arbitration clauses, if the Restoring Statutory Rights Act becomes law.
  3. The enforceability of an arbitration clause would be a decision for the court, not the arbitrators, under the Restoring Statutory Rights Act.

U.S. CongressContacting your U.S. Senator to ask them to support the Restoring Statutory Rights Act is a step you can take to help fight back against forced arbitration.

The Zamparo Law Group follows legislation and legal decisions affecting consumer rights. As there are new developments that could affect consumers, we will share the news on our social media pages.

The Zamparo Law Group, P.C. is a consumer protection law and litigation firm, representing consumer plaintiffs. Zamparo Law Group in the northwest suburbs of Chicago sues and wins against the companies who refuse to follow the law.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our FacebookTwitter and LinkedIn pages. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] The National Law Review, Federal Arbitration Act Trumps State Law Again, Jan. 14, 2016.

[ii] U.S. Senate, Restoring Statutory Rights and Interests of the States Act of 2016.

[iii] The Hill, New bill aims to restore rights lost in forced arbitration clauses, by Lisa Gilbert, contributor, and Sonia Gill. Feb. 11, 2016.

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The Consumer Financial Protection Bureau enforces rules for mortgage settlement and servicing.

Arbitration clauses prevent consumers from suing in court, but might not end the fight

Consumers are often victims of unfair practices of which they are previously unaware, and when they learn about subjects like arbitration clauses in contracts, it may be too late and the damage is done. Arbitration clauses buried in the fine print of consumer contracts limit a consumer’s access to the courts to individually sue or participate in a class action lawsuit against a creditor who wrongs them. In too many cases the companies suing consumers either sue the wrong person or do not have any real documentation that someone actually owes a debt. Binding arbitration clauses can prevent a wronged consumer from suing a bad-acting company in court. While it may seem like there is no hope, the Consumer Financial Protection Bureau (CFPB) can fine companies who break the law and consumer rights attorneys are advocating for consumers and fighting back.

By the time consumers find out they agreed to arbitration, it often too late to sue in court.

Arbitration is an alternative dispute resolution procedure in which a panel of arbitrators, often lawyers and retired judges, are presented with the arguments of both sides of a dispute. Based on the local rules for arbitration, where it takes place, the parties can state their claims, defenses, and present evidence supporting their claims. Arbitration however, is not the same as a court of law, and if the arbitration clause is a “binding,” the parties must accept the decision of the arbitrators and that is the end of the line, and there is no returning to the civil courts. To have a dispute settled in arbitration requires both the parties to voluntarily agree to arbitration. However, that agreement to be limited to arbitration is often included in the fine print of consumer agreements, and the consumers accepting those terms often have no idea that they are giving up their right to sue in traditional civil courts.

Arbitration clauses are found in more agreements than consumers may realize.

Arbitration clauses are frequently used in consumer contracts for utility services, credit cards and consumer loans for homes, businesses and automobiles. Even if a consumer is aware of arbitration and they seek to avoid being bound by a binding arbitration clause, the fine print in a disclosure that comes with the monthly bill is easily overlooked. Moreover, consumers transacting their business online might fail to read a click through agreement containing a modification to their agreement with the lender or provider in which they accept the new terms by clicking to proceed to make an online payment, for example.

Clifford Cain Jr., a retired electrician, in his West Baltimore home. Courtesy of NY Times, Sued Over Old Debt, and Blocked From Suing Back. http://nyti.ms/1OmTE6w
Clifford Cain Jr., a retired electrician, in his West Baltimore home. Courtesy of NY Times, Sued Over Old Debt, and
Blocked From Suing Back. http://nyti.ms/1OmTE6w

To big to be held accountable? Suing consumers who do not even owe a debt? How is this possible?

The big companies who use arbitration clauses in their consumer agreements assume that the majority of consumers will ignore or not challenge the arbitration clause because they need the services or money borrowed from lenders. In the example of a utility company, there may be no other viable option for services and the consumer has little choice other than to accept the terms of the agreement, including the arbitration clause. In many cases, the consumer pays their bills on time and satisfies their duties in the agreement. However, in other cases, things go horribly wrong and the consumer suffers the harsh reality of the arbitration agreement, barring their access to the courts when they want to sue the lender or service provider.

One individual in Maryland, living on a fixed social security income, found out about arbitration clauses the hard way. Mr. Clifford Cain, Jr., a retired electrician in Baltimore[i], one day discovered his bank account was drained because a utility obtained a judgment against him and seized his funds. Incredibly, the debt was not a current and owing debt and the suit to collect was wholly improper. Even when Midland Funding, the party collecting against Mr. Cain, was unable to produce a copy of any arbitration agreement applying to Mr. Cain, the court allowed an example of another similar customer and their arbitration agreement, to satisfy the Court.

Abusive collectors and loan servicers have business models assuming many people cannot fight back.

Big companies buy and sell bundles of debt and collection companies seek to collect on what they assume are proper owing debts. In most cases, these collectors do not have any of the original documentation of an agreement, the individuals names just appear on a list with an amount owed. People who have never had any transactions with some companies are sued in court and judgments are entered against them. Individuals who want to challenge an arbitration clause that blocks them from court have an uphill battle. Class action lawsuits representing a significant number of consumers have a better chance of making it through litigation, and some cases return large jury verdicts against big companies engaged in deceptive and harmful debt collection practices.

The Courts too often take the position of the plaintiff companies and uphold the arbitration clauses.

Courts are often ruling that arbitration clauses are binding and enforceable, even despite clear and reasonable arguments about their enforceability, and are blocking class action lawsuits. Justice is failing. The CFPB that protects consumers from harmful business and debt collection practices. The CFPB can issue fines against companies bullying consumers, and the CFPB is not barred by any arbitration clause because the CFPB is not a court of law, rather an administrative agency with the teeth necessary to take a bite out of bad business practices.

Advocating for consumers is all the attorneys at the Zamparo Law Group do, and they do it well.

The attorneys at the Zamparo Law Group, advocating for consumers, file complaints with the CFPB and file individual and class action lawsuits against abusive companies, bullying consumers with arbitration clauses and bogus claims. Many people do not realize that there are consumer protection laws the Zamparo Law Group attorneys fight to be enforced. Unfortunately, too many people give up and accept an unfair fate, some eventually filing for bankruptcy protection to avoid the burden of being bullied by abusive companies. If you think you are a victim of unfair business practices and need someone advocating for you, call the Zamparo Law Group.

To learn more about consumer protection law and the Zamparo Law Group, please visit the firm’s website. You may also ask for a free case review. The Zamparo Law Group is connected on social media, please follow us and share our resources we share on our Facebook page. You may call the Zamparo Law Group with any questions by dialing (224) 875-3202.

 

[i] NYTimes, Sued Over Old Debt, and Blocked From Fighting Back, by Jessica Silver-Greenberg and Michael Corkery, Dec. 22, 2015.

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