Welcome. Welcome to the Consumer Financial
Protection Bureau’s field hearing in Denver Colorado at the history Colorado center. Today’s
field hearing you will hear from Director Richard Cordray and a panel of distinguished
experts who will discuss the dispute arbitration clauses in consumer financial contracts, which
the regulatory proposals will be released today will address. The Consumer Financial
Protection Bureau or the CFPB, as an independent federal agency whose mission is to help consumer
finance markets work on making rules more effective, I consistently and fairly enforcing
those rules and by empowering consumers to take more control over their economic class.
My name is Zxita Martinez, Associate Director for external affairs division at the CFPB.
Our audience today includes consumer advocates, industry representatives, academics, state
and local officials and, of course, consumers. We are specially especially place to have
in the audience, can both, Colorado’s Deputy Commissioner of the banking. We are delighted
you are here. Ken Bolt.
First you will hear from CFPB Director, Cordray who will [Indiscernible] proposals. Following
the Director’s remarks, David Silberman, Associate Director for the bureaus do research, market
and training division will frame discussion with our panel of experts. After the discussion,
there will be an opportunity to hear from members of the public. Today’s field hearing
is being live stream deck consumer finance .gov and you can follow the CFPB on Facebook
and Twitter. Let’s get started. I am now pleased to introduce Richard Cordray. Particular role
as CFPB’s first Director, he led CFPB’s enforcement office. Before that he served on front lines
of consumer protection as Ohio’s Attorney General. In this role he recovered more than
$2 billion for Ohio’s retirees investors and business owners and took major steps to protect
it’s consumers from fraudulent foreclosures and financial predators. Before serving as
Attorney General, he also served as an Ohio State Representative, Ohio Treasurer in Franklin
County, Treasurer. Director Cordray. Thank you, Zixta. Thank all of you for joining
us today and a particular, thank you Ken Bolt. We talk about something often deeply in the
fine print of consumer contracts for consumer products and services such as credit cards
and bank accounts. It is called an arbitration clause. More precisely, mandatory pre- dispute
arbitration clause. If you do not know what an arbitration clause is there and your just
the same as the vast majority of American consumers. Companies use this clause in particular
to block class-action lawsuits. Provides themselves with a free pass for being held accountable
by their customers. That free pass is secured by making sure consumers cannot group together
too secretly seek relief for wrongdoing. Many violations for consumer all of our relatively
small amounts of money for the individual victim. The claims are often the only effective
way consumers can pursue meaningful relief or harms that can large @-at-sign-at up to
larger amounts for financial providers. At the consumer financial detection Bureau we
estimate this free pass affects tens of millions of consumers. To understand the issue more
plainly, we can look in a hypothetical example based on real-world consumer experiences.
Barea and Cate, names are fictitious, or customers that two differed banks and both [Indiscernible]
overdraft fees on checking accounts. It turns out there banks are processing transactions
in unexpected ways that increase the number of overdraft fees without clearly explaining
what they are doing. These practices cost Maria and take a few hundred dollars each
but they have earned the Bank hundreds of billions of dollars across many customers.
After consulting lawyers, Korea and Cate our told that all practices have been found to
be illegal at another bank that would not make economic sense to sue to recover the
small amount each of them have been overcharged. Maria and can’t recall their banks and demand
refund but no guarantee that will get their money back. Even if they manage to do so,
the same practices would continue to affect others. Maria and Cate each agreed to sue
their base not just on behalf of themselves but on behalf of all other consumers too were
victimized in the same way. Maria succeeds in bringing a group claim and obtaining a
settlement on behalf of 2 million consumers. As a group, the consumers are eligible to
receive upwards of $100 million relief reef fund for these wrongfully charged and bank
agrees to change practices so the harms cannot continue. By contrast, take lawsuit is this
dismissed. So far as we know Cate gets nothing for herself and other customers are left without
relief despite the fact or bank engaged in similar practices and used similar disclosures.
The difference is Cate’s bake at arbitration clause that David I free pass from efforts
to pursue relief by blocking her group claims. By simply invoking the magic words of the
arbitration clause, Kates bank was avoiding being held accountable. The only obligation
for Kates bank was to bring their own arbitration cases for relatively small amounts that would
be impractical impractical to pursue. In addition such arbitration cases would never be revealed
to the general public. They’re dramatically different experience is of these two consumers
illustrate how companies use this clause to make the game against customers. Group losses
can result in substantial [Indiscernible] for consumers a great leverage to bring about
changes in business practices. By inserting the free pass into their consumer financial
contracts, companies can sidestep the legal system, avoid refunds and assume that a practices
violating the law and harm consumers on a large scale. That me take a step back and
give you background of how we got here. At its most basic level, arbitration is a way
to resolve disagreements outside of the federal and state court systems. Originally, arbitration
was used for disputes between businesses. It was really used the disagreements between
businesses and other customers or consumers. In the last 20 years or so, companies started
including arbitration clauses in their consumer contracts requiring any disputes or the need
to be resolved through private arbitration. And a double he sure they could escape accountability,
many companies walked group claims even an arbitration. Thus forcing consumers to go
through the process by themselves in isolation or forego it all together. Some companies
offer their customers the chance to opt-out of arbitration clause. Very few customers,
if any, ever exercise the option which is unsurprising given the majority of consumers
do not even know the arbitration clause exists. Group lawsuits depend on a group. The few
consumers to opt-out of arbitration find very few others our still available to join their
lawsuits. Simply impossible to have an effect of group play where the vast majority of consumers
have all lost there right to have their day in court. Either before the consumer Bureau
was created, Congress had started to take an active role in dealing specifically with
the problems of forced arbitration. In the last decade, Congress began to distinguish
mandatory dispute arbitration which is typically imposed on consumers and the contractual boilerplate
and arbitration that both parties can freely decide to undertake after a dispute has already
risen between them. In 12 2011, Congress passed military lending act prohibiting mandatory
arbitration clauses in connection with certain loans made to service members. Three years
later in the Dodd Frank Wall Street Reform and consumer protection act, Congress went
further and banned such causes the most residential mortgage contracts. In the Dodd Frank act,
Congress also put in place a further measure that brings us to where we are today. In a
two step process that all of Paris bureau to address I’m concerned that Congress had
already highlighted row mandatory dispute produced. Arbitration clauses. Require beer
to conduct study and issue a report on use of arbitration clauses in connection to consumer
financial protection services. Ones that initial work was completed, Congress gave the Bureau
the bot authority to consider whether to issue regulations that it deemed to be a public
interest for the protection of consumers, and consistent with the results of its study.
We published that study and issued a report to Congress earlier this year. In the months
sense, even critics have a knowledge the multi-year study which runs to 728 pages and analyzes
extensive data was most rigorous and comprehensive study consumer finance arbitration ever undertaken.
In the study, we found arbitration clauses are evasive but the vast majority of consumers
do not even know they exist. We also found that tens of millions of consumers are covered
by arbitration clauses in several consumer finance markets. Large banks, in particular,
commonly include these clauses in their standard agreement for any cards and checking accounts.
We also found that many payday lenders put such causes into their contracts. Our study
shows that more than three force of consumers we surveyed in the credit card market did
not know whether they were subject to an arbitration clause in their contract. The Bureau study
specifically concluded group lawsuits can be an effective way to provide relief to consumers
when they are allowed to proceed. Indeed, by examining five years of data, we found
group lawsuits delivered on average about $220 million in payments to 6.8 million consumers
per year in consumer financial service cases. We also saw that in many instances, as in
cake situation come group names to you by companies that evoke arbitration clause to
cut off relief. For example, in cases where critical or companies with an arbitration
clause in their contracts we’re sued in a class action on the because to block the lawsuit
almost two-thirds of the time. One point of special interest to us was the climb frequently
made by companies that held benefit of arbitration that these clauses enable them to lower the
cost of consumer financial services for consumers. Our study was able to examine this claim closely
by comparing large credit card companies that did and did not have arbitration clauses in
their contracts, including some companies that previously had such causes but had stopped
using them in the wake of adverse litigation. Our analysis did not find evidence that critical
or companies either increased prices or reduced access to credit when they eliminated their
arbitration clauses. After carefully considering the findings of our landmark study, bureau
decided to launch a rulemaking process to protect consumers. The proposal under consideration
would prohibit companies from blocking group lawsuits to the use of arbitration clauses
in their contracts. This would apply generally to the consumer financial products and services
that the Bureau overseas, including credit cards, checking and deposit accounts, certain
auto loans, small dollar or payday loans, private student loans and similar products
and services as well. What approach we might have taken would be a complete ban on all
pre- dispute arbitration agreements for consumer financial products and services. Our proposal
would not do that. Companies could still have an arbitration clause but that would have
to say explicitly that it does not apply to cases brought on behalf of a class, unless
or until the class certification is denied by the court for the class claims are dismissed
in court. This means we are not proposing at this time to limit the use of arbitration
clauses as they apply in individual cases. This approach is consistent with the conclusions
reached in our study. It is also consistent with the rules of the financial industry regulatory
Authority know it’s a fine and our applied to broker-dealers for years with approval
of securities and exchange commission. While at one time certain individual arbitration
systems were problematic for consumers in terms of procedures and results, without companies
today generally cannot bring cases against consumers and arbitration. We also found that
companies rarely use their arbitration clauses to block consumers from suing them in individual
cases. In addition, without only a small number of consumers bring individual arbitrations.
Although we are proposing to prohibit the use of pre- dispute arbitration clauses all
together, we’ll continue to monitor the effects of such causes on the resolution of individual
disputes. To enable us to do so our proposals would require companies to send to the Bureau
all filings made by or against them a consumer financial arbitration disputes, and in the
decisions that STEM from those filings. By developing copy of the data on these matters,
over time we will be able to refine evaluation of how such proceedings may affect consumer
protection, if at all. In order to create more transparency and spur broader thinking
by researchers and other Institute parties we are considering publishing the information
for all to see so the public can analyze it as they see fit. Depending on what the data
reveals, down the road these issues could be subject to further consideration by the
Bureau and by other policymakers. The essence of the proposal we have under consideration
is ever get rid of this free pass to prevent consumers from holding a fine to providers
directly accountable for the harm they cause when they violate the law. Doing so would
produce three general benefits as we see it. First, consumers would have the opportunity
to get their day in court. This is a core American printable. Under the U.S. Constitution,
each one of us is entitled to seek justice for due process of law. This right is reinforced
in many state constitutions which recognize the right to an effective remedy to address
injuries we may sustain to our personal property. This is all an important element of personal
liberty that people should have the ability to protect themselves by acting to vindicate
their rights. Nobody should have to rely on the government first decided to pursue an
enforcement action in order to get their money back and hold others accountable. But as we
all already no to discipline or the for consumers to undertake the cost and burden of bringing
individual case just to challenge small fees and charges. As noted, U.S. Court of Appeals
Judge, Mr. Postman or, as convincingly absorbed and I quote the realistic alternative to a
class-action is not 17 million individual suits but zero individual suits, as only a
lunatic or fanatic sues for $30. That is in fact a primary reason why procedures allowing
for group lawsuits have been widely adopted in virtually all of the State courts in the
last century. By joining together to pursue their claims as a group, all of the affected
consumers would be up to seek and, when appropriate, obtain meaningful relief that is a practical
matter they could not get on their own. Second, another important benefit of the proposals
we are considering is they would deter wrongdoing on a broader scale. One way this is often
expressed his by describing group lawsuits is being brought by private attorneys general,
as a means of vindicating public rights and as an aid to other methods of law enforcement.
Although, many consumer financial violations a post on each individual consumer taken as
a whole these unlawful practices can yield millions and even billions of dollars in revenue
for financial providers. Arbitration clauses at bar group protect ill-gotten gains enabling
companies to being afforded to being held accountable. Taking less care to ensure their
counter complies with the law than they would have taken if they did not have a free pass
from group lawsuits. Indeed, some companies may even feel emboldened they can safely engage
in conduct to Bali consumer protection laws or even there own contracts with customers.
The potential to be held accountable in a group lawsuits changes this dynamic. When
a group lawsuits leads to a court order conferring relief on tens of thousands of consumers who
are victimized by suspect practices, the likely result is creates a market for current and
future customers of that company, as well as the other companies in the same market.
That is true because substantial monetary award can lead a company to rethink it’s practices
by reassessing it’s bottom-line. It is also true because such actions may result in specific
measures that force copies to change the way they do business. The public spotlight on
these cases can influence business practices that other companies that become aware of
the need to make similar changes to avoid facing the ire of their company with the risk
of similar lawsuits. Third, by requiring companies to of our bureau with arbitration filings
and written words, which might be made public, the proposals we are considering would bring
the arbitration of individual disputes into the sunlight of public scrutiny. This will
provide a safeguard against arbitration proceedings that are unfair or otherwise harmful to consumers.
Furthermore, both the Bureau and the public would be able to monitor and assess the pros
and Cozumel arbitration clauses affect resolutions for individuals do not pursue good claims.
This will improve our understanding and enable policymaking that is better informed and more
precise. In the end that will be better for consumers couple responsible businesses and
for the economy, as a whole. One way to think about the effect of enforced pre- dispute
arbitration clauses is to recall what Sherlock Holmes described as the curious incident of
the dog in the nighttime. In the famous detective story, everyone except Holmes this is the
fact that the dog did nothing during the night, including not working at all, which yields
the important clue that the intruder was likely recognized. With the story illustrates is
it is often hard to grasp the significance of something that does not happen. Thus and
easily go unnoticed. The same point can also be applied to arbitration. What we learned
in the course of our study is very few consumers of financial products and services are seeking
relief individually either to the arbitration process or in court. Moreover, there are also
unknown number of cases that are never filed because of the mere presence of an arbitration
clause. Billions of other consumers who may not even realize their rights are being violated
might have obtained relief and group lawsuits were permissible. Like the dog that did not
bark in the Nikon decided fact that all of this missing relief for consumers can be hard
to notice but is nevertheless a vital piece of the story. The central idea of the proposals
we are considering is to restore to consumers the right post do not even know had been taken
away from the. Companies should not be able to place themselves above the law and evade
public accountability by inserting the magic word, arbitration, in a document indicating
the favorable consequences. Consumers should be able to join together in a certain to indicate
their established legal rights. Under the approach we are considering, companies will
not be able to tip the scales in their favor by writing no free pass to the detriment of
consumers. Everyone benefits from a market where companies are held accountable for their
actions. Thank you. Thank you, Director Cordray. At this time
I would like to invite our staff and guest panelists to please take the stage. While
they are doing so I will introduce them. David Silberman serves as Associate Director Bureau
research markets and regulations. Desmond Brown serves as the Deputy assistant Director
for office of financial empowerment. To-Quyen Truong serves the General Counsel and Assistant
Director for office of litigation and enforcement support. Our guest panelists include Jean
Sternlight, professor of law, University of Nevada, Las Vegas, will you mess Boyd School
of Law. Jose Vazquez, Colorado Legal Services. Ira Rheingold, Executive Director, General
Counsel, National Association of Consumer Advocates. John Ruby, Senior Vice President
and Chief lending officer at Bell company credit union. Alan Kaplinsky, partner, Ballard
Spahr, Stephen Ware, Professor of Law, University of Kansas. David, you have before.
Thank you, is it up. Good morning, everyone. That me explain what we are going to do and
take a moment for remarks. After I finished talking, each of our panelists will have a
few moments to give opening remarks. To confuse everyone in the audience, we put Alan Kaplinsky
to the left and I will buy gold to my left. We will then have a chance to ask westerns
of each of the panelists and the we will move to comments from the floor. With that, let
me at the risk of retreading some of the ground Director Cordray has covered, I spin able
but to set the stage for the discussion this morning. As Director Cordray said, we are
here because Congress in the Dodd Frank act directed the Bureau to study the use of pre-
dispute arbitration agreements in contracts for consumer financial products and services.
We did that in March after three years of work. We issued final report to Congress.
The Dodd Frank act not only required Bureau to do this study but once it was finished,
also get the Bureau the authority to engage in rulemaking if we determine doing so would
be consistent with the findings of the study for the protection of consumers and in the
public interest. Since March, we’ve taken some time to digest the result of the study
and determine with if rulemaking makes sense. In thinking to this we decided to take a preliminary
step and convene a meeting of small businesses, consistent with the small business regularly
enforcement act known within the Beltway as [Indiscernible]. Together, with a small business
administration, FBI, office FBI, Office of Management and Budget may, we will convene
a meeting of small businesses to discuss with them what impact, if any, are the proposals
under consideration would have on the smaller entities. Will also affect time be engaging
in a concurrently other stakeholders to elicit their input and views as well. In preparation
for the meeting with the small entity representatives and these rounds of consultations and to facilitate
discussion here, we developed preliminary policy proposals under consideration at the
Bureau with which Director set out in his remarks. In short and to be clear, we do not
propose banning arbitration. To the contrary, under the proposals we are considering, we
permit companies to keep including arbitration act agreement in their consumer finance contracts
with some conditions. First, companies could no longer use arbitration agreements as a
free pass to avoid class actions. Second, companies would be required to submit to the
Bureau all arbitration claims filed in any arbitration awards involving consumer finance
matters so that we can better understand the effects of consumer arbitration of consumers.
On top of this, we are also considering whether to publish these documents of the public can
also benefit from more transparent record of individual arbitrations. With that as context,
we now turn to the discussion of arbitration and the proposals under consideration, more
specifically. I will invite our panelists to present opening remarks. To make it easy
us, we will go down and starting of right with Professor Starlite. ‘S B good morning.
As you know, Davis Jean Sternlight. Professor at University of Nevada call Las Vegas, where
I direct the [Indiscernible] to do for conflict resolution. I do want to make it clear that
today, I’m speaking you might personal capacity, not physical best of the but speaking as a
law professor, lawyer and somebody who has been interested in justice and fair treatment
for consumers for many, many years. I want to demand the CFPB for taking an extremely
important step today to protect predator consumers from what I see as a grossly unfair dispute
resolution process. Of more than 20 years, I have been writing, some might even say raging,
about the danger that mandatory arbitration poses to consumers and employees. While often
a great fan of both mediation and arbitration, my research has shown that companies widespread
use of small print and often online arbitration clauses to keep consumers and employees out-of-court
denies those groups access too justice. Based on my extensive analysis, I have include concluded
by far, the most harmful aspect of mandatory arbitration is it prohibition on class action.
Way back in the year 2000, I wrote an article entitled, as mandatory binding arbitration
meet the class action, will be class-action survive? In my opinion, sadly, the answer
has largely turned out to be no. Guppies are imposing mandatory arbitration largely for
the purpose of insulating themselves from class actions, getting what Director Cordray
has called today, the free pass. The elimination of class actions is extremely harmful to consumers
and employees because of those groups cannot participate in class actions, they usually
have no opportunity to present legal claims at all. While some have argued that mandatory
arbitration provides quick cheap access too justice, the data collected by the CFPB and
others just does not support this claim. Instead, barely any consumers ever file individual
claims in arbitration for quite easy to see why. With their claims are relatively small
or when consumers don’t realize they have been harmed or their harm violates the role,
or when consumers the retaliation, it is clear consumers will never file individual claims.
By contrast, a single class-action cap protect hundreds, thousands or even millions of consumers.
Consumer class actions have led to the payment of several billion dollars in the five-year
period study by the CFPB. These payments not only benefit consumers but, for important,
in my view, they also deter illegal conduct by companies that does if companies are able
to elude class-action by preventing consumers from participating in them, they are almost
able to entirely insulate themselves from civil liability. I am delighted the CFPB,
has authorized in the Dodd Frank act is seeking to put an end to this unjust practice that
impact financial consumers by preventing companies from using mandatory arbitration clauses to
prevent Panetta consumers from participating in class actions, the CFPB will help in short
consumer protection statutes can’t and will be properly enforce. The CFPB hasn’t gone
as far as I would have liked. I have been an opponent of all the mandatory of attrition
for years and I am so pleased their taking a very, very important first step. Thank you.
Thank you. Ms. Zxita Martinez, the resource. my name is Jose Basque as, attorney for consumer
unit of Colorado Jose Vasquez, Colorado Legal Services is a state wide legal services provider.
We provide legal representation to every county in the State of Colorado. Our mission statement
is to provide legal services to individuals who our unable to obtain legal representation
and assistance due to a lack of financial resources. The clients that Colorado Legal
Services have assisted in the past are those who have been a war the contract they have
signed has contained arbitration provision until either they received notification that
the matter was being referred to arbitration or where they have had documents reviewed
by an attorney or by us. In which they were then told they had unknowingly consented to
an arbitration clause. The client of Colorado Legal Services have found arbitration clauses
in many of the day-to-day transactions they it are into. The majority of those transactions
being put a card or retail card transactions. However, we’ve also had clients who have had
arbitration provisions found in cell phone transactions, auto loan, retirement accounts
and many of these clients or most of the clients, rather, that we have spoken to merely believed
they were taking steps to maintain the financial viability of themselves and their dependents.
In almost every single case, our clients were not aware they consented to such provisions.
Suffice it to say the impact of the arbitration clauses in our consumer transactions have
had an adverse effect. Our clients have indicated to us that they were surprised they would
not be able to have their day in court, as a result of an arbitration provision contained
in an agreement they had assigned too. We have had very little success in being able
to override the enforcement of the arbitration clause against Colorado Legal Services clients.
The arbitration clause has certainly put these folks at a disadvantage in that they are not
able to obtain counsel to represent them in this type of proceeding. We believe that the
issues that low-income clients face in their day-to-day transactions in arbitration provisions
certainly puts them at a disadvantage in having to find out they have not had the ability
to obtain an attorney to represent them in such arbitration proceedings is another burden
to the already difficult situations that they find themselves in. We certainly could talk
for a long time about the impact this has had on our clients. We certainly hope that
Consumer Financial Protection Bureau will take into account these accounts.
Thank you. Mr. Ira Rheingold.
Good morning. I would like to thank the CFPB for their extensive an important study on
the impact of force arbitration clauses are consumers of the financial services marketplace.
I would also like to thank you for holding this field hearing a beginning the import
process of protecting consumers by regulating force arbitration. I’m not revealing any great
to go by saying that we and the ceramic and community CFPB should completely been forced
arbitration clauses in our financial services contracts within your jurisdiction. As an
attorney who has spent most of my almost 30 years legal career advocating for a moderate
income consumers, I witnessed firsthand the damaged him by denying consumers access to
our public justice system. During the first half of my professional life I revisited try
to some of the poorest communities in our country, fighting in our public courts for
some measure of justice. For the past 14 years, I’ve been Executive Director of [Indiscernible]
Spinney gigabyte is working with and talking to private and public attorneys to be committed
to seeking justice from these powerful consumers there during all of these years, I have borne
witness to the relentless and all to often successful effort of powerful financial services
institutions to strip away fundamental consumer rights of those far less powerful. Whether
it’s been through the regulation, preemption, the funding or, ultimately, through unconscionable
contract terms, the goal and the result has been the same, avoid corporate accountability
by taking power away from anyone who might have the skill and ability to actually do
so. To be perfectly honest, would arbitration clauses first appeared in consumer contracts,
I given little thought. Surely, there was no consent by my client. Surely, was a parchment
before powerful businesses to deny my client access to our public justice system. Surely,
Glen try to participate in class actions, we will provide a by state legislatures and
federal rules cannot be taken away by a mere click of a button or none read Braille, surely
if we proved, as we have, that forced arbitration consumers from getting little help cover getting
paper redress, the clause will be unenforceable. Surely, I would be wrong. Instead, today,
they show a small majority in the Supreme Court of the world without their growing dual
justice system where consumers lose their fundamental right to their day in court because
of unseen, unread contract terms imposed on them. With financial industry players overwhelm
those very same course with often spurious cases against those very same consumers, where
public record in the growth of public well-thought-out caselaw and important consumer issues continue
to diminish in the proper consumer redress and enforcement is only available to consumers
who luckily avoided the long reach of arbitration clauses in class-action waiver. To illustrate
the fine point, let’s look at one case, I hope versus America. Or was a class-action
may have a consumers victimized by a very deck election in auto reset practices. Federal
court in certifying class of consumer victims excluded any consumer with an arbitration
clause in their original contract. To consumers who participated in the class and hundreds
of billions of dollars of debt relief and cleaned up credit reports. This consumers
Bernard with arbitration clause received nothing from their so-called that’s remain and continue
to be improperly reported on their credit reports. The CFPB has authority to write these
wrongs, to rebuild fair and equitable consumer justice system, I strongly urge you to do
so. Thank you. Thank you, Mr. Rheingold. Let’s move to my
left and start with you if we may. Thank you.
First of all, I feel out then that appears surrounded by academic attorneys and regulators
but I will give it my desk so. I’m John Ruby and that is our UB Y RUBY for the record.
Balko is a $3 billion financial institution. We serve to end of 50,000 members with 21
branches in the Denver metro area and Western slope. We have approximately $2.4 billion
in consumer deposits and approximately $2 billion in consumer loans, which do include
auto, mortgage, credit card and private student loans. As a local, member driven, member-owned
financial cooperative, we are accountable to our members. Therefore, it is critical
that we provide an overall experience that causes our members to want to choose us for
the financial services that ask. That experience includes price, value, convenience and how
we conduct business. Part of our conduct includes wooden contracts for various deposit and loan
products. Some of our contracts include arbitration clauses while others do not. In either case,
the existence or nonexistence of arbitration clauses has been a nonissue in Balko’s history.
I am not saying we do not have disputes with our members. We do. We learn of them directly,
through their contact with us. We also learn of them indirectly, through consumer Advocate
radio programs, local Better Business Bureau’s and our local regulator, the division of financial
services. We work hard to address any issues one-on-one with our members. There have been
rare instances will be could not resolve these issues one-on-one. Those resulted in litigation.
Putting this into perspective, there have only been a couple of those in the last five
years. Also we have never been a party to a class-action lawsuit. To my knowledge, over
the last 12 years, during my time on staff at Bell company, we have not even been threatened
with a class-action lawsuit. Finally, although Bell Canada was not directly regulated by
the CFPB because we are under $10 billion in assets, and even though arbitration clauses
have been a non- issue for us, we are very interested in this proposal as it will undoubtedly
have impacted on our business, how we write our contracts, how we deal with our members
and our cost and method of doing business. Thank you.
Thank you. Mr. Quincy.
Good morning. First Alan Kaplinsky. Thank you to the Bureau for asking me to present
today. I feel a little like I am in the Lions then but I will proceed. Since I pioneered
the use of class-action waivers in arbitration provisions, more than a decade and a half
ago, I’m very troubled by the approach that the bureau has taken with the proposal that
got presented today. In July of this year, I submitted a comment letter to the CFPB,
to Director Cordray regarding the arbitration study. I did that on behalf the event on behalf
of the American bankers association, the consumer bankers association and the financial services
Roundtable. A copy of that letter appears on our blog, devoted to the CFPB, CFPB monitor.com.
Although the CFPB’s proposal reflects an inclination not to outright prohibit the use of arbitration,
let’s make it perfectly clear, was as my kids used to say, let’s be real, dad, by requiring
companies to insert are treasure provisions language except in class actions from arbitration,
the Bureau is, in reality, proposing an outright banned. It is a the fact though banned. Let’s
call it what it is. Of this proposal becomes a final regulation, most companies will simply
abandon arbitration all together. That is because the cost-benefit analysis of using
arbitration will shift dramatically. While companies dispute resolution costs will sort,
consumers will be the ultimate losers here because they will no longer have available
too them arbitration, which has been proven by the CFPB’s own data in its own Robert ration
study to be faster, cheaper, and a more effective for that courts for resolving disputes. As
I said, you don’t need to take my word for it. The data in the CFPB’s own study vividly
demonstrates that the only people who benefit from class actions of the plaintiffs class-action
lawyers and to a lesser extent, the lawyers who defend those lawsuits like me. There is
no doubt God despite the limited data set the CFPB looked at and try to determine whether
there would be an impact on cost from getting rid of arbitration, this is simple economics.
If arbitration is illuminated and I said this is de facto elimination, the services will
[Indiscernible] the time. Not been individual disputes when there is no class-action involved,
even the CFPB has implicitly conceded there is nothing wrong with arbitration. What they
have done here is to exalt the class-action process, which has been discredited by courts
and commentators for decades. They even sort of a lewd too it in there 34 page report allude
to it in there 34 page report. The U.S. Supreme Court has made the class-action process increasingly
ineffective as a means of providing redress to consumers. Despite these developments,
despite the results of the CFPB’s own study showing the consumers don’t really benefit
from class actions, and despite the same results of a similar study that was done not so long
ago by the U.S. Chamber of Commerce, the CFPB concludes, in my view, quite illogically that
class actions need to be preserved, regardless of the adverse consequences to consumers.
The very group it is charged with protecting. Thank you.
Thank you. Finally, Professor Stephen Ware. I am at arbitration
Knerd. I am a professor who has been teaching consumer law and who for over 20 years have
all caps research and writing on arbitration, particularly, consumer arbitration. I have
occasionally served as an arbitrator of consumer financial disputes. I have a lot to say on
very nerdy topics like the separability doctrine and deferential judicial review but those
topics put most people to sleep. I won’t spend time on them now. If any of you want to get
if any of you want to get nerdy, you can ask me later on about those topics. Instead, now,
I will talk about the topics a broader group of people care about which are class actions
and money. Class actions have been a big political battle between business groups and plaintiffs
lawyers for over 40 years now. If we believe some plaintiffs lawyers, class actions are
the only thing saving all of us consumers from fraudulent bankers. If we believe some
bankers then class actions, which don’t much exist outside the U.S. are horribly destroying
the American economy. The truth, I think, is somewhere in-between those extremes. For
that reason, I encourage the Bureau to take a cautious middleground approach on the topic
of class actions. Neither allowing arbitration clauses to continue fully defeating class
actions, as they do now with the Supreme Court decisions that were referenced earlier. Nor
going in the direction that it seems the Bureau is inclined to go of banning class waiver
agreements entirely. As a consumer myself, and I hasten to add, I don’t see this as consumer
advocates against business groups. I see it or at least should be seeing it as more what
is in consumers interest different approaches as to what is a consumer interest. As a consumer
myself, I like to see class waiver clauses in my agreements with banks. I believe that
I and most other consumers benefit from trading away, in most cases, usually benefit, not
always, usually, benefit from trading away class actions for what I believe are downward
effect on price due to helping relieve businesses dispute resolution cost. Director Cordray
said, quite rightly, the Bureau’s study did not find evidence of arbitration having an
effect on price but the Bureau’s study sophisticated careful to distinguish effect from statistically
significant effect. It’s important to remember that the Bureau’s study was looking at credit
card arbitration during a short time period when there was a temporary moratorium on arbitration
clause use. Businesses don’t generally change the price is based on temporary changes in
cost, particularly, when they’re rivals are not subject to those to Paris changes. Here
I cited a paper by University Jason’s Johnson on the study. I will not get into the detail
on the econometrics of it all but there’s reasonable doubt, at least, about whether
arbitration clauses reducing class actions does benefit consumers in terms of lower prices.
I think common sense suggests that anything that lowers businesses costs tend, over time,
to be passed along to consumers in the form of lower prices. I’m going to end for a plea
for centrist sawfish cautious middleground. It goes [Indiscernible] and is a problem and
I caution the Bureau to go to the other extreme on that topic. Thank you.
Thank you. Thank you all panelist for your opening remarks. We will now start with a
series of questions. Professor Stephen Ware, since you were last in the first round, you
will start with the first question. What in your opinion on the most important
issues that regulations in this space should address? Feel free to be as dirty as you wish.
Of my kids we’re here they would say there’s nothing too nerdy for me.
I do think the Bureau is on one of the three most important topics. The other two separability
doctrine and deferential judicial review, you can see my paper on the Internet about
it. With respect to class actions, the Bureau does not have to go as far as banning class
waiver agreements. What I propose instead is just treat arbitration agreements like
the law treats other form contracts. The law varies, or at least it did before the Supreme
Court reached what I would say overbearing decisions referenced earlier. You have had
variation around the country. Different courts have taken different views of class waiver
agreements. What a B so horrible if, for example, Virginia enforced those agreements and California
did not. Is a fine if state say laboratories experimenting with different law on something
like this? Let the law percolate and evolve with cases coming up and seeing the benefits
and costs rather than coming in with a very broad brush approach now.
Thank you. We’ll turn to Desmond Brown for the next question.
This question is for M r. Vazquez. Would’ve been your experience with arbitration clauses?
We get numerous requests for assistance from individuals who are involved with that collection
matters. Primarily, we have clients who come in who are being sued or are on the end of
being on the verge of being garnished. First, let me say with regards to the proposal regarding
class actions as a legal services provider, we, personally, does not engage in class-action
lawsuits so I am not going to make any comment on the furtherance of class-action lawsuits.
My answer will speak to the impact that the arbitration clause in consumer transactions
has on the individual. What I have seen is a meeting in meeting with my clients, first
of all is they did not know they had agreed to consumer arbitration agreement. I will
have clients come in and bring in a pile of documents, literally, a pile of documents.
Sometimes they are in bags, boxes and I have the joy of going through and sorting through
the transaction that they it turned it into. Oftentimes, I have had to break the news to
my clients and informed them that they have consented to arbitration agreement. And the
only way they can pursue that remedy would be to go through an arbitration proceeding.
Then I had the difficult task of telling them that I do not do that and none of my attorneys
within my program engage in representing clients in arbitration proceedings. You may wonder,
why don’t we do that? One of the issues with providing representation in an arbitration
proceeding, first of all, we, as attorneys, we follow the will of. We follow the rules
follow the Rules of Civil Procedure. We have case law, we have precedent, decisions. We
have good decisions. We have bad decisions. But with an arbitration proceeding, we certainly
have found that the client does not have access to what they would expect in a legal proceeding.
They don’t have discovery. They are very limited in terms of their discovery. They don’t have
all the protections of the rules of evidence, the rules of procedure to the extent that
they would have in a legal proceeding. There is also the fact that an arbitrator is not
a Judge. The decisions are not public. It really presents a very difficult situation
for our clients. The inclusion of arbitration decision, provision rather, puts the clients
of our program in a very disadvantageous situation in which they cannot find legal counsel to
represent them in defending the claim. It is I would also submit that in many cases
the individuals who have consented to such provisions don’t fully understand the ramifications
and don’t perceive these to be legal proceedings. You have individuals who say, I really didn’t
know I needed an attorney, when this is, in fact, a transaction that will impact their
livelihood, their ability to sustain their car, their home, the things that they need
to keep their family afloat. It’s a very difficult situation for the clients that we represent.
In essence, these arbitration provisions limit, greatly, the ability of our clients, and again,
I’m speaking on behalf of the individuals who have trouble being able to afford an attorney.
Number one, finding the resources to afford an attorney to represent in a debt collection
matter, consumer dispute is oftentimes cost prohibitive but then to find an attorney who
would be willing to go to battle in an arbitration setting is another burden for our clients.
We certainly have seen firsthand the use of arbitration provisions is certainly a negative
has adversely affected our clients and their ability to proceed with transactions that
are really day-to-day nature. These are the transactions that our clients do and they
expect to do things in order to sustain their livelihood.
To-Quyen Truong, next question. Mr. Karpinski, if the market that over arbitration
clauses could not invoke those clauses in order to band their consumers or customers
from grouping together to bring lawsuits and go through the courts to receive relief, how
would that impact the individuals consumers, actions and the Company’s activities and copies
it too, consumer financial practice of the marketplace overall?
Part of that question, I think, answered already but it bears reiteration. That is if this
proposal becomes a final reg, then companies will largely abandon the use of arbitration
and what are consumers left with? They are left with the ability to participate in a
class action, not typically as main plaintiff but as a member of the so-called punitive
class. The CFPB’s arbitration study, the data contained in it demonstrates clearly that
it would be very harmful to consumers if that happened because arbitration is, if the consumers
get the right education on how to use it, and I am, again, going to call the CFPB the
task to task. Because CFPB has a very large education division. They haven’t spent $1,
as far as I know, educating consumers about the use of arbitration or what it means to
be a member of a putative class. Let’s take a slightly deeper dive into the data in the
study about class actions. CFPB looked at 562 class actions. It showed that in 60% of
them, the consumers got no benefit whatsoever. Why? Because 25% of the class actions were
settled individually, meaning, the main plaintiff got money and the plaintiff’s attorney got
money. The rest of the class got zilch. 35% were withdrawn by plaintiffs. You might say,
how could that be the case? I have been involved in defending class actions for more than 40
years work most class actions that I have defended, not all of them but most of them
are merit list. They are brought by plaintiffs attorneys with the idea of never prosecuting
the class-action to conclusion but rather to use it as leverage to extract an individual
settlement and to be paid in attorney’s fee. Let’s look at the data a little bit more.
The data shows that of the cases that were settled, yes, and the aggregate, there are
big numbers, right? 32 million people getting $1.2 billion in monetary relief but when you
do the long division, and I don’t not to not know why CFPB did not do the long division
in the study comes to $32.35 on average. In the class settlements that required members
to submit a claim form and, again, I’m looking at your own study. I did not make this up.
The weighted-average claim break was only 4%, meaning that 96% of the putative class
members failed to obtain any benefits at all work in your own data, because they did not
submit claims. The disputes get resolved on the merits and knobbed transient, not in the
class actions that you study. In those 562 class actions, not one went to trial. The
other thing to bear in mind, and I really I took offense, to be honest, at the reference
too Dr. Cordray’s opening remarks to companies getting a free pass from class actions or
getting a free pass, suggesting they are getting a free pass from liability, that this is exculpatory
in nature. Quite the contrary. Your data shows that class actions, by your large are ineffective.
What effect it is the government enforcement initiatives that you are Bureau has engaged
in that the Federal Trade Commission, Department of Justice, state attorneys general have engaged
in. In particular, you are Bureau. You settled well over 100 cases and you’ve gotten an enormous
amount of relief. Interestingly an off, your study cut it off at a certain point before
the Bureau was really ramped up with its enforcement initiative.
Thank you. Let’s turn to Professor Jean Sternlight and
focus to the other element of the proposals under consideration, the proposal to require
individual arbitration claims and decisions get submitted to the Bureau. And you speak
about the value you see in the Bureau doing such monitoring of individual arbitration
cases? I think that is important and a wonderful
piece of this proposed rule because for years and years copy but like me have been say,
do this we don’t like arbitration. People like Alan Prensky and Stephen Ware defending
a. The Bureau has brought us great information for the study it has already done and eager
to get more information. Mr. Allen put Mr. Post Mr. Cap Prensky is right when his kids
said, let’s get real. Let’s get real and one of the import these the Bureau has told us
almost no consumers bring the individual claims that Mr. Prensky think is wonderful. It’s
a few hundred a year in miniscule. We will get more information is Bureau obtains more
information from the arbitrations that are conducted, the very few individual arbitrations
conduct a. That is extremely important. We have seen horror stories about arbitrations
handled in an unfair biased and inappropriate way. If we can expose them to the light of
day we will learn more and, hopefully, discourage or the inappropriate practices. I think one
of the reasons arbitration has been so damaging is it has been impossible, almost, for researchers
to get access to what goes on in arbitration because it is private likely proceedings their
public. Bringing that into the public eye will be a great service.
Thank you. Desmond?
This question is for Mr. Ruby. What factor doesn’t institution consider in determining
whether to use arbitration clauses? I will address this from the perspective of
the small business. Keeping this in context, consumers have choice. They have a tremendous
amount of choice in the market. As we look at arbitration for litigation clauses, we
also take it from the perspective, these are an absolute last resort. These are things
that, after you have exhausted and work with your customer, in our case work with our members,
this is the last resort. This is not the first fire of the Diwali or should not be. Shame
on any business that behaves that way. From that perspective, I have also heard said these
arbitration clauses and that sort of thing are buried in the fine print. As a regulated,
heavily regulated financial institution, I would say those arbitration clauses are buried
in the fine print, along with lots more pages of fine print of things that have built up
over the years of regulatory requirements that have to be put in documents. It is not
as though we have clean, simple things upfront. We have a six-point font arbitration clause
at the bottom. Bottom line, it’s cost versus benefit. It boils down to, can we provide
a service to our members and balance that, provision of that service from a cost standpoint
to the benefit they will get, as well as allowing them channels to voice their disputes. It
really is as simple as that. [Indiscernible]?
Mr. Ira Rheingold, what is the impact causes have on consumers access to courts and what
impact, if any, on consumer financial practices Lex.
Good question. practices? Good question.
Arbitration provisions prevent consumers from getting to court, bottom-line. The larger
point their are a real important point to make is there is a whole body of attorneys,
consumer attorneys, who represent consumers who come to the with problems. We have a whole
statutory scheme of law, debt collection, aures PA, FDCPA that require that have the
shifting provisions allowing attorneys even if they can’t. Those consumers often go to
the attorneys. What happens in almost every case is attorney will look to see if there
is an arbitration clause. If there is cap and will not take the case. When you are an
attorney who is representing consumers, you have a lot of consumers coming to you and
you are doing your own cost-benefit analysis as well. If you know what the lawless and
see a clear violation and you are going to court you know if you go to court to have
a good chance of winning because you know what the law is and what the Judge will do.
The project get it wrong you can appeal. and when an arbitration clause exists, the same
attorney unless very good case will not take the case because they do not know will happen
in arbitration. If he stacking to help the consumer attorney, they have no idea of the
the arbitrator will grant that or whether they will get paid at all. Consumer attorneys
simply do not take cases when consumers come to them at the arbitration clauses there.
Will we have seen again as I read pointed out in my remark is diminishment of enforcement
of statutory consumer protections that we have created over the years and debt collection
and [Indiscernible] and truth in lending are not being enforced on a daily basis anymore
because of arbitration clauses. Thank you.
Let me ask one final question to each of the panelists. I will ask you to keep your remarks
reef so we can move on to the public participation part of our field hearing this morning.
By final question is, what alternative, and the current system call one alternatives are
available to consumers who cannot band together to seek relief before the court and feel their
rights have been violated? Let’s go opposite from which we start a. Starting with Professor
Stephen Ware. Currently, the alternatives are bringing individual
claim in arbitration or in small claims court as arbitration clauses have that carve-out
, that option. The more practical alternative is don’t do business with that company anymore
if it is a $30 claim, $1 claim. Best of all, call them up and ask them for a correction
that internal dispute mechanism that a lot of companies have. It has always worked well
for me. He really is where I think Professor Starlite basic the distinction between harms
that consumers know about. You know that somebody took $5, $30 from you and you complain about
that the or that error on a stable versus harms you do not know of. If used think outside
of consumer context for second to show contracts to go if there is chemicals in the water supply
harmful, how well you know that? Whereas you know if somebody is taking your money. You
also know is if you have been denied a loan or you have been turned out Trudell for credit
in some other way. I get with the point I for sized earlier which is, consumers losing
that class-action option shouldn’t be looked at only from the perspective of consumers
with a dispute and their plaintiff’s lawyers. It should also be looked at from the perspective
the consumers without a dispute and at the cost on business of this class-action system,
to what extent are those passed on to consumers? Mr. Kempinski?
One of the things we have overlooked so far is that the overwhelming majority of consumer
disputes are not result in arbitration or in litigation and, certainly not in class-action
litigation. Alan Kaplinsky. They are resolved informally without need for arbitration or
litigation. Companies don’t want to be in dispute with consumers, believe me. They want
to get beyond that. They want happy customers. Companies provide toll-free numbers or customers
to contact if they have a problem and they have extensive service departments to make
sure that customers are satisfied. In addition, the Bureau has, it’s self, established a portal
to which financial services companies resolve consumer disputes informally. According to
the CFPB whose website from July 2011 through March 1 of this year, we’re than 558,800 alleged
consumer complaints have been resolved in this manner. I want to conclude by addressing
an issue that got raised and gets raised over and over again by Director Cordray in his
opening remarks today and we saw it in the press release and that is the relatively small
number of arbitrations. Why is that the case? I say, it’s explained by the fact that, as
I said, the vast majority, probably 99.99% of the consumers resolve their disputes informally,
short of arbitration and litigation. Also consumer arbitration is really in its infancy.
It really only got up and running and began about 15 years ago. That’s not a long period
of time. Plaintiffs lawyers and consumer advocacy groups have consistently send negative messages
and now this Bureau is sending negative messages, even though it hasn’t yet, claims it has not
prejudged anything, issued even a proposed message but clear the direction in which the
Bureau seems to be moving. The messages are all negative about arbitration. Their ought
to be some balance. As I said before, why not use your education arm cod Director Cordray,
to help educate consumers? Why not education arm, Director Cordray, to help educate consumers?
It can be used as a way to supplement. Template portal at the end of the day, consumer disputes
unable to dissolve informally, to consumers they might have an arbitration provision in
their credit card agreement that can be used. Then, of course, you’ve got government enforcement
that’s largely taken over the role of making sure that consumers are not systemically abused.
The good thing about that, and I know it sounds weird that I would be praising government
enforcement, because more often we are on the opposite side of CFPB. But at least there
you got an agency without and ask to grind. They are not going to be getting and they
have no self-interest. They don’t get huge attorneys fees. In the study the CFPB did,
the plaintiffs attorneys got almost one-half million dollars in attorneys fees. Knotting
coupons but in cold cash. Those are the reasons, I believe, that you don’t see a lot of arbitration
and you don’t see a lot of individual liquidation litigation.
Mr. Ruby? I’m speaking from member of credit union of
our own and members. Arbitration shall be last line of resort. First line of defense
is cod do business with companies you can trust. If you’re not working with a company
that can listen to you and your complaints, go somewhere else. Absent of that, there are
obviously other methods too non- class-action suit litigation, other methods of arbitration.
There is mediation. Finally, again, speaking as a heavily regulated industry, there are
plenty of other agencies out there you can complain to as a consumer. I do think this
is not the only option. There are many options. Again, the boils down to choice in the first
place. Mr. Ira Rheingold. C can you repeat the question
as I got lost. Arbitrations currently available under the existing system.
Or by perspective there are no alternatives. Purpose of arbitration has been to a limited
ability of consumers to seek justice. Arbitration have the people out of court, @-at-sign-at
people at a participating in class-action. There are no real alternatives for consumers
to let businesses accountable. Mr. Jose Vasquez?
No alternative for consumers to go on their own and will create a growing class of unrepresented,
self represented, whatever you want to call them, individuals who now have to navigate
to these proceedings on their own without counsel. I believe that, in my experience
in having gotten involved with individual consumers, I fund that my presence or the
presence of any of my staff makes a huge difference in how the companies treat the consumer. It
is amazing what can happen when there is legal assistance, legal guidance and legal representation.
You have a company that says, we’re not going to give you anything does anything. All of
of a sudden got the presence of an attorney provides a way to help even the playing field.
Basically, you are throwing the consumer they are on their own, under underrepresented it,
pro se, whatever you want to call the bet that is the only result.
Thank you. Professor Sterlite?
Consumer alternatives to be done the situation. Consumers can proceed individually to help
themselves and they do so all the time for certain claims. Simple claims they know about.
Jean Sternlight. Bill by a company they did not use. They can
play do customer service. At that does not work they used charge back. They do that in
the drawers by the thousands and thousands of thousands. We are not talking about that
today. We are talking about a different kind of harm that is sometimes done to consumers
in the financial context. It’s things like excessive check bouncing fees or strange foreign
transaction fees or funny interest rate calculations. These are things that consumers often do not
even realize they have been subjected too. If they do realize it, they don’t know it’s
illegal. If they were to somehow figure it out, they can’t handle it on their own. They
could try and file individually but they will get nowhere. They need arguments, lawyers
and evidence. It’s not worth it because they’ve only been screwed out of $20 or whatever.
Pardon my language. For those kind of claims that what were talking about. I do agree with
Alan Kaplinsky that [Indiscernible] is a good solution. About one and all of his clients
would join with me to lobby Congress to increase funding greatly for the government regulators
nationally and state like I we could change the tenure of this conversation. If that is
not going to happen then we need an alternative and that has always been class actions. He
Alan up and skills like a class actions are not perfect and never have been. They don’t
always help everyone all of the time but the CFPB’s study shows they have done a tremendous
amount of good. If we allow companies to continue to get rid of class actions, there is no viable
alternative for consumers, for those kinds of problems. That’s why I think it’s so important
to continuum this path. Thank you. Thank you, very much. I want to thank all
panelist with your important contributions. Zxita Martinez, back to you.
Thank you card data. What a terrific job moderating the panel. Please join me in thanking our
panelists for a lively discussion. [Applause]
At this time, we ask that they please rejoin the audience. .
An important part of how the bureau helps consumer finance markets work across the U.S.
is there directly from consumers, industry, our state and local partners and from community
advocates. One of the ways that the bureau gathers public feedback is through public
events such as these. We have held field hearings, public town halls and other public events
across the U.S. from Miami, Florida, to [Indiscernible] Mississippi to Seattle, Washington. At these
events, we not only hear from experts in the field, we also invite the public to participate.
Before I opened the floor up for public comment, I want to remind folks there are several other
ways to communicate your observations, your concerns to your comments to the CFPB. You
can file a consumer complaint with the CFPB through our website at consumer finance .gov.
Our website will walk you through the process for filing any consumer complain about a financial
product or service. CFPB takes complaint about mortgages, or loans, leases, student loans
or other loans. We take complaint about credit cards cap prepaid cards, credit reporting
got debt collection, money transfers come take account and services and other financial
services. We also take complaints about issues with arbitration clauses in consumer financial
context. If you don’t have a specific complaint but would like to share your story, we have
a feature on our website called tell us your story where you can tell us your story, good
or bad, about your experience with consumer financial products or services. We also have
another feature called, ask CFPB where you can find answers to over 1000 frequently asked
questions and answers about consumer financial issues, as well as additional resources. I
encourage you to visit consumer finance .gov to learn about the resources and tools the
bureau has developed to help consumers make the best choices for themselves and for their
family. Now, it’s time to hear from you all, today. A number of you have signed up to share
public comments and observations about today’s discussion. The public comment portion of
the field hearing is also an important opportunity for the Bureau to hear about what is happening
in consumer finance markets in your community. Each person who signed up to provide testimony
will have two minutes to do so. What we hear from you we’ll have two minutes. What we hear
from you with valuable and we want to hear from as many of you as possible. We encourage
you to observe the two minutes limit so as many folks can share their observations and
have the opportunity to do so. Our first public commentor is Jean. We will bring the microphone
to you. Thank you, very much. I wanted to first they
the CFPB and the Director for being here today. This is really an important occasion and we
are glad you decided to come and visit Denver. I am a consumer of attorney and an advocate.
I have been practicing for 15 years. By practice involves seniors who are experiencing significant
consumer transaction and financial debt obligations in a time in their life they would not expect
they would be doing so. I particularly concerned with the comments concerning the ability of
consumers to make a choice. That would be great if consumers we’re making the choices
on the front-end but the reality is they are already in relationships with this company.
They already have cell phones, cable television and various other contracts that, at some
point, when they are having difficulties begin to discover that they have an arbitration
clause. Now, my opinion would be that there should not be any arbitration clauses. Given
that is not the case, it’s not my world. If we move in this direction, in this direction
of at least moderating the impact, being able to ban less actions, I think that would incentivize
and, possibly, encourage businesses to be more open with their customers from the beginning
of the relationship and not having these issues arise at the worst possible time in the consumer’s
life. Is at a perfect solution? No. It’s not a perfect solution. I think the CFPB and Ebola
in this room with you agree with everything I’m saying CFPB and others in this room, if
you agree with everything I’m saying or what others are saying that we have not been doing
the best job we could be doing for consumers and we need to address that despite are many
different these. Thank you for 15.
Maria Lavie. I am here as a homeowner involved in a construction
defect so. As many of you know live in Colorado, the State legislature for the last three years
have been trying to pass a law that prohibits homeowners homeowners were fine except for
construction defects and will require mandatory arbitration. Now, will the jurisdiction or
passing the laws because the State legislature has not been able to do so. I can tell you
for my personal experience and all of you who are homeowners know that is the biggest
financial investment you will ever make. To say that we should understand the product
before we buy it, well, you look at it, it looks good. [Indiscernible] brochure looks
great. No aspect process subject to defects. In our situation we had to amend our declaration
in order to bring a lawsuit. It was very arduous task. Thank God we had that route because
if we had to go to our bridge if we would have had to go to arbitration we would have
had to pay the attorneys, they for the destructive testing in order to bring the information
to the arbitrator, and what he does for homeowners is put you in a very huge financial problem
because our defects alone, my percentage of the cost would have been $32,000. That’s a
lot of money. I think, I’m not totally related to this issue but a mortgage is a financial
instrument, and to take away are right to take this to court to get what we purchased
in the first place is our natural right. To say that we have to go to arbitration and
pay for the arbitration, I have met so many people involved in this issue. 11 men I met,
their condo association, there document did not allow them to amend. They had to go to
arbitration and spent almost eight years and arbitration. They spent $1.2 million and we’re
awarded $1.3 million. Whereas in our situation, the money we want paid for everything. Certain
instances, and everything is, nobody is looking how to solve the problem. The problem is,
how hiring a bit of their party engineers to oversee the construction and it adds a
minimal cost to the property but, developers are avoiding the responsibility to build a
good product. Thank you.
Danny Katts. Thank you. My name is Danny Katts, Director
of Colorado [Indiscernible] interest group, consumer advocate group. We want to thank
CFPB for comprehensive three-year study on arbitration clauses and financial service
contracts. We think that study supports what empirical evidence and it. Research in our
experience has shown, which is due to forced arbitration, corporations have a virtual get
out of jail free card and our shielded from being held accountable for bad behavior. Forced
arbitration clauses 118 Americans access to the courts, forcing them instead to eight
private system set up by corporations to favor corporations. Committees usually forced arbitrations
because the system allows them to reduce or completely escape accountability for corporate
wrongdoing. They also use these terms to eliminate class action, it will consumers need to band
together to seek remedies for small dollar entries. We appreciate the CFPB’s recognition
and their proposal to eliminate the class action, to allow for people to band together
for class actions, especially in small dollar harms work we note that the arbitration clauses
will still exist after this and so there is still a risk they will remain biased and in
favor of a financial industry but, we don’t think a consumer should have to give up the
right, any rights can’t just to do everything does every eight everyday things such as open
up an account or open up and auto loan. Thank you CFPB for your good work and we’re defenders.
Thank you. Very Katherine Rebbet.
Thank you, very much, for this opportunity. The hearing today has been very enlightening.
I have spent 35 years as an attorney on behalf of low-income clients both to Colorado Legal
Services and now with disability law Colorado. I support, especially comments of Jose Vasquez.
The people most are by these provisions are low-income individuals who do not have the
education and the sophistication of a lot of other consumers who read the fine print
and accept the consequences of not reading that until they learn they do not have a remedy
available too them that is the assistance of an attorney in a civil action that can
bring about some redress. Think you very much for being here.
Thank you Ms. 10 I. Dan Wartel?
Dan Wartel, them or trial Attorney. Access is important. Public due process is important
and, fairness, both actual and perceived is important. In my humble view, I don’t view
this as a proconsumer or a pro-business debate. It’s a debate about fundamental due process
and the right of citizens, including the consumers, to access the courts. Now, we have heard in
other political context and debate. What we need is not moral laws but enforce the laws
we already have. Import too.out, this debate is not about the creation of new causes of
action or creation of new track laws. It’s about the firm. It’s about the process by
which people there to enforce those rights because as we all know, if the vehicle by
which to enforce the right is eliminated or restricted than the ride itself goes away.
I represented many, many clients and many consumers in both arbitrations and in front
of juries and courts. What I can tell you, is regardless of the outcome of the proceeding,
whether my client wins or loses, the feeling of knowing that you went in front of a jury
of your peers or that you went in front of a public servant public today Judge not an
actual insider who gets her or her business from the very people they are litigating,
that means something. That finality and that respect for the process is very important.
I think this is a step in the right direction. I think this is not as far as we would have
hoped but it’s certainly a step in the right direction. We hope you will act now to preserve
access too justice too preserve consumers right to due process, and to make sure there
is actual perceived fairness in these transactions and this is to get rid of arbitrations and
allow people to avail themselves of [Indiscernible]. Thank you.
Sarah McCarran. My name is Sarah McCarran. I am a consumer
protection attorney. My firm has represented consumers in class-action litigations and
individual actions as well. We have God really for hundreds of thousands of consumers. In
those actions, we have held banks, other financial institutions accountable to the consumer protection
laws that have been passed by Congress. Often we have consumers come into our office hoping
for relief. We have to turn them away because they are bound up by an arbitration clause
that they usually had no idea was even part of their contract. For that reason, those
consumers are denied relief and those banks and other financial institutions were not
held accountable and are not held to the standards of the consumer protection laws. In one case,
our firm took on an over to ration clause and we were able to overcome the motion to
compel arbitration but that took over two years and hours and hours of litigation and
motion practice. After the two-year struggle, finally, the consumer was able to bring his
consumer claims to the table. Itch and be that hard for a consumer to bring an action
to enforce their rights that they are entitled to under the laws, the consumer protection
statutes. Thank you.
Bob Colston. Bob Karel Stan Caroleston.
I was confused about testifying after the hearing this morning but I will do so because
I am a retired life and health insurance person. As such, I was both a seller of life and annuity
products. I was also a purchaser of life and annuity products. I stopped selling health
insurance years ago when I realized there was no place for the delivery of health insurance
of healthcare for insurance companies. I have also recently received benefit from the arbitration
or from the class-action suit process because, as a consumer of an annuity from a company
I had represented, I also received an award as a member of the class because some of my
colleagues, and I don’t think I did but, misrepresented annuities which are complex agreements. Charlesten.
Therefore, I would like to see the class-action upheld.
Thank you Mr. Charlesten. Thank you for spending your time and we greatly appreciate your time.
Paul Bland. Incredibly grateful the bureau is taking this
step I think will result 90% or more of force or rotation has had an underbody consumer
Law. Want to urge you to think more about the issue about whether or not it’s okay [Indiscernible]
first arbitration individual cases. One point you made is there are that many cases they
go to individual arbitration. Part of that is the chicken and dad. You have data submitted
to Bureau that shows vast majority of consumer or years for less likely or won’t take a case
where there is forced arbitration clause because of understanding instead of having a jury
you will have a case decided by a lawyer that represents businesses all the time and people
are less likely to do that. Also a problem, “-right-double-quote-end quote, there’s a
nonfrivolous plaintive by hit period by baked force the attorneys fees. There been number
of consumers that have been bankrupted. One of the things as a consumer lawyer you have
to tell the consumer before arbitration you think it is a risk to yourself. You bring
if you bring a lemon law case or know where you’ve been cheated and get it with the other
side attorneys fees of several hundred thousand dollars, you could lose everything. Part of
the reason their are many cases going to individual arbitration because of the risks, you will
not see if you go to court. The other things , you made a point, and one point national
arbitration and you did not use the name but the biggest consumer arbitration Tenold tens
of thousands of individual arbitrations was shut down for corruption. They are not around
and no one is doing it and you don’t need to look at individual arbitration. One of
the things your say not smudge from big banks. I think [Indiscernible] is right. If Clack
center and [Indiscernible] or not allow most big banks don’t care. Smallbore sketchy actors
like credit auto loan like the individual cases and stick and bells and whistles such
as short statute nations leveraging it. Those are moving away from better-known arbitration
companies like arbitration association and see more like Fred arbitration services and
companies know one knows about. I’m getting contacted by consumer lawyers asking about
the arbitration opening. We cannot give them anything. If you say Citibank uses a fairly
fair clause for individuals that all they care about is banning class-action Scott individual
arbitration cases don’t mean that much. I think you will have a lot of individuals that
will be treated badly. This is opportunity I will only get one shot every 10 years. This
is the time to stop this problem. Thank you.
Jonathan Harnes Harris. Jonathan Harris.
Some of the writing is hard to read. ‘S B thank you. I appreciate the opportunity to
speak to the panel also. I am here as a consumer. I was dressed in my position. I’m the President
of, build our homes. I bought a condominium in 2004. Unfortunately, it was not waterproof.
We’ve been trying to fix it since then and we ended up in a construction defect claim.
We were fortunate enough that we did not have an arbitration clause written into our bylaws.
We ended up suing, after having worked with the builder and Developer for a number of
years and it looked like things were moving along. Finally, we discovered things were
not going to work out without hiring a legal firm. We finally reached a settlement because
it was one month before we went to court. It was obvious we were going to win. And so
if we had had that arbitration clause, I don’t believe that we would have prevailed in this
case. The other thing is, having gone through this experience, I study arbitration a lot.
I locally did not have to go through it but I was concerned about it because the in Colorado,
it seems to be the building industry is trying to push that will right now to force consumers
into arbitration for faulty construction. My perception was that it was created for
large businesses with lots of money to resolve their disputes. It wasn’t created for the
large company against the little guy. That’s what the courts are for is to level the playing
field. I am really concerned about the fact that arbitration takes away that leveling
for consumers against special-interest. Thanks a lot.
Thank you, Mr. Harris. Jeff Korrain?
I am Jeff Korrain representing consumers who have claims against their builders. You don’t
get involved in class-action lawsuits but I get involved in a lot of arbitrations. I
see the arbitration clauses the builders put in their contracts with homeowners and the
user arbitration clauses. In particular, the cost for arbitrations is a way to discourage
claims. For a typical case that we file, we will see a deposit the arbitration firm require
of somewhere between $60,000 up to $120,000 for the deposit. There are no current requirement
under federal or Colorado will require fees and arbitration to be split equally between
the parties. We’ve seen arbitration clauses requiring the claimant to pay the entire fee
or conditionally, there’s no federal or Colorado laws that require fee waivers for those that
cannot afford the fees. Also we see some builders that will use the requirement of a [Indiscernible]
panel that will to pull the cost. Not to add any additional level of fairness to the process
but knowing that most claimant to bring a construction defect claim would not be able
to afford three times the cost of a single operator at $120,000 of one of these cases.
Additionally we see of their processes for selection of the arbiter. The requirement
in Federal or Colorado law that the selection of the arbiter, IV mutual among the parties
we will see often where the arbitrator is requiring them to pay for the arbiter and
no requirement that the arbiter does not just Jews their next-door neighbor couple other
law or someone they can read they can recruit who does not have final stake in the upper
My name is Thaddeus [Indiscernible] and with [Indiscernible] trusts. I would talk about
revelation prevalence of arbitration. I first want to be to what consumers they got a bridge.
We have done studies on this. Consumers, overwhelmingly, do not like elements of arbitration. You have
heard several Midgett so far such as the Act of legal training required for the arbiter
of coffee shifting provisions they make a very expensive to bring a claim and, in several
others. On prevalence, I heard earlier that some one so well might choose to go where
there’s arbitration or choose where there’s not arbitration. We found out that 92% of
prepaid cards had arbitration provisions. This is a growing number. The checking accounts,
it’s less but still vast majority of large banks have these agreements. Further, one
thing that was a mentioned is, whenever%, which is an prepaid card agreement Scott checking
card agreements, whatever% of them of the banks maintain they have the right to change
the terms at any time. 100% of them maintained they have the right to change the terms at
any time. If they do not have the terms today maintain the right to have one tomorrow.
Paul Chason. Paul T A Taylor Hutt.
I have a different perspective as a former state regulator. 17-year veteran and former
Paul Chesson. Colorado Attorney General’s office. I am no
longer with the Attorney General’s office and remarks are my own. Many federal state
consumer protection [Indiscernible] including statutes when I was with AG office allow for
private rights of action. They allow private citizens to act as private attorneys general.
Because government regulatory agencies have limited resources and can’t pop possibly bring
or let alone know all of the violations out there, Private Attorney General actions complement
the State and federal regulatory enforcement mechanisms and increase the effectiveness
of these regulatory statutes. That’s accordingly private Attorney General actions should be
encouraged and not frustrated so as to affect these statutes purposes. Arbitration clauses,
the particular, those with class-action waivers defeat the purpose of the statutes. They frustrate
and eliminate an essential enforcement mechanism with these statutes provide. Arbitrations
are nonpublic. They are secret. Accordingly, they lacked a turned value that court cases
have. They don’t send the message to industry about possible consequences for violating
the statutes. Because they are also nonpublic, they lack any presidential value. They lack
any educational value to educate consumers as to their rights under the law, and Justin
as important, they don’t add education value to the industry about what is or is not acceptable
conduct. Regarding the class actions, individual claims under these statutes are usually very
small. A class-action waiver destroys the incentive for individual to bring a claim
to vindicate his or her rights. With all due respect to Judge [Indiscernible], Supreme
Court said 20 years ago and I “policy a very core of class-action mechanism is to overcome
the problem that small recoveries to not provide the incentive for any individual to bring
a selection prosecuting his or her rights. A class-action souls of this by advocating
the [Indiscernible] potential recoveries into something worth someone’s labor. “. Thank
you. David Siegelman?
Hello. I’m David Siegelman. Former staff attorney, national consumer Law Center and contributing
author of national Lassiter. I speak on behalf of [Indiscernible] low-income clients and
now a staff attorney at [Indiscernible] justice of Colorado. I’m also an arbitration nerd
but, as an arbitration nerd, and I think many of us in this room might fall into that category,
I think it’s important that we remind ourselves of the stakes. I want to say a word about
the effects and importers of group litigation to my low-income clients. I’m piggybacking
on what Jose Vasquez said but focusing on group litigation. Low-income people are more
likely to be harmed by insidious and difficult to identify harms. They are less likely to
be consumers of corporations that have these easy 1(800) numbers that Alan Kaplinsky talked
about. Most importantly, the small dollars, $10, $30, small dollar claims we talked about.
Them harder. I am reminded of a book from a couple of decades ago called, nickel and
dime, that talks about how the costs of being a low-income worker and a lower-income worker
in America add up. Importer for all of us to remember and something the bureau is aware
of is that even when we talk about small dollar claims that we not trivialize their importance
to economic justice and economic fairness for low-income Americans.
Thank you, Mr. Seligman. Thank you to all that provided thoughtful public comments today.
Thank you to the audience, to the panelists, and all of those watching by lifestream and
consumer finance .gov. This concludes the CFPB’s field hearing in Denver, Colorado.
Have a great afternoon. Thank you.