WEBVTT - New CFPB Rules Makes Consumer Bank Suits Easier (Audio)

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<v Speaker 1>The country's consumer watchdog is making it easier for customers

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<v Speaker 1>to sue banks and class actions, a move which is

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<v Speaker 1>sure to be widely opposed by financial industry groups, congressional Republicans,

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<v Speaker 1>and the White House. The Consumer Financial Protection Bureau adopted

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<v Speaker 1>a new rule on Monday banning financial firms from forcing

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<v Speaker 1>customers to arbitrate disputes and to give up their rights

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<v Speaker 1>to go to court. My guests are Raphael Mangual, a

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<v Speaker 1>legal policy project manager at the Manhattan Institute, and Mike Gonzal,

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<v Speaker 1>a fellow at the Roosevelt Institute and founder of the

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<v Speaker 1>Roardy baumb financial blog who is in the Bloomberg Studios.

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<v Speaker 1>Mike tell us about these mandatory arbitration clauses that are

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<v Speaker 1>found often in the fine print of everything from credit

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<v Speaker 1>cards to checking accounts. Yes, and they go far beyond

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<v Speaker 1>that too, to elderly care homes, to students and a

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<v Speaker 1>for profit schools. But in the financial world, where the

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<v Speaker 1>CFPB has jurisdiction, there are two big developments I think

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<v Speaker 1>that happened last two years that really pushed this into

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<v Speaker 1>the public consciousness. Once one was a series of reporting

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<v Speaker 1>by the New York Times really just saying how broad

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<v Speaker 1>and widespread this is, um that virtually every type as

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<v Speaker 1>you just mentioned, but virtually every type of financial product,

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<v Speaker 1>be it your credit card, be it you're checking account.

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<v Speaker 1>Basically anything that is not a mortgage, which is banned

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<v Speaker 1>by law from having these kinds of arbitration of being forced,

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<v Speaker 1>has these kinds of contracts, and it really is a

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<v Speaker 1>transfer of power from people's ability to go to court,

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<v Speaker 1>people's ability to be seen with public power, into private power,

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<v Speaker 1>into setting set by the banks themselves. And the second

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<v Speaker 1>was the Wells Fargo scandal. Um what people found, weirdly enough,

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<v Speaker 1>was that the fake accounts that people were signed up

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<v Speaker 1>for had these arbitration accounts, so people could not actually

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<v Speaker 1>sue in the way that they normally thought they would.

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<v Speaker 1>So the potential for abuse became very apparent, even though

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<v Speaker 1>it was always there. Raphael, What does this new rule

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<v Speaker 1>by the Consumer Financial Protection Bureau do well? It would

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<v Speaker 1>essentially and banks from blocking consumers from joining class action

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<v Speaker 1>lawsuits to resolve that there's their disputes with those banks.

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<v Speaker 1>And the way that banks and other financial institutions normally

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<v Speaker 1>do that is through the inclusion of an arbitration clause.

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<v Speaker 1>But the problem is that the opposition to these sorts

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<v Speaker 1>of clauses. Actually, I think UM reflects a fundamental misunderstanding

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<v Speaker 1>of how effective class actions actually are as a way

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<v Speaker 1>to resolve these disputes. Remember, most of these disputes per

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<v Speaker 1>small dollar amounts, and so individual litigation is not going

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<v Speaker 1>to be the most efficient way to handle that um,

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<v Speaker 1>which is the benefit of an arbitration because it's a

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<v Speaker 1>lot cheaper, a lot quicker, a lot more efficient, and

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<v Speaker 1>although most people don't know this, more often results in

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<v Speaker 1>a favorable ruling for a plaintiffs. Do you agree with that, Mike,

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<v Speaker 1>there's also class actions which are really easy for plaintiffs. Yeah,

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<v Speaker 1>so there's a quite I mean, this band's mandatory arbitration

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<v Speaker 1>right to these sent that arbitration is efficient and obviously

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<v Speaker 1>a good solution for people. It is still there is

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<v Speaker 1>an option. It just bands mandatory arbitration right. The mandatory

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<v Speaker 1>put of consumers into this kind of private realm of law. Now,

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<v Speaker 1>who sues their bank over thirty dollars? I mean, you

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<v Speaker 1>think of how sticky these contracts are. You know, if

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<v Speaker 1>your bank charges you twenty bucks that was invalid and fraudulent,

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<v Speaker 1>are you going to sue them? Are you going to

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<v Speaker 1>leave because you know you have to re goo to

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<v Speaker 1>HR and redo all your checking, you have to order

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<v Speaker 1>new checks, you have to change everything. You're probably just

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<v Speaker 1>going to eat it, especially if you do not know

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<v Speaker 1>that other banks have protections as well. So this really

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<v Speaker 1>does add an important element for consumers, and I think

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<v Speaker 1>crucially the big thing here is that it removes that

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<v Speaker 1>mandatory private power element. You do have your ability to

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<v Speaker 1>go to a court, you do have your ability to

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<v Speaker 1>band with other people in a way that is no

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<v Speaker 1>longer dictated to you by the financial industry as a whole. Rafael,

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<v Speaker 1>would you agree that for consumers this is a good thing.

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<v Speaker 1>It might not be good for financial organizations. No, it's

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<v Speaker 1>actually more likely to hurt consumers. And so one of

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<v Speaker 1>the big reasons that you see some of the support

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<v Speaker 1>that you're seeing for this new rule is this notion

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<v Speaker 1>that you know there that consumers are essentially you know,

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<v Speaker 1>without power in terms of you know, coming out on

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<v Speaker 1>top of these disputes. But the Manhattan Institute actually published

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<v Speaker 1>a report by UM University of Virginia professor Jason Johnston

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<v Speaker 1>a while back, and that report actually found that seventy

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<v Speaker 1>of the time a bank would actually refund the fees

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<v Speaker 1>in response to a consumer complaint. And so again I

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<v Speaker 1>think a lot of the support for this new rule

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<v Speaker 1>to CEFPB is based on a fundamental just misunderstanding of

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<v Speaker 1>what the facts on the ground are. And so the

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<v Speaker 1>notion that you know, allowing these consumers to join class

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<v Speaker 1>actions is somehow going to result and you know, payoffs

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<v Speaker 1>for them is just not reflected in reality. I mean,

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<v Speaker 1>the CFPPS own report that they that they published in

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<v Speaker 1>support of this rule found that consumers were only getting

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<v Speaker 1>about thirty two dollars um each UH in the unlikely

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<v Speaker 1>event that a class action settled the resulted in a

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<v Speaker 1>favorable verdict, whereas arbitrations that went to a decision delivered

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<v Speaker 1>an average of over five thousand dollars for consumers. And

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<v Speaker 1>the notion that this is good for consumers is just

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<v Speaker 1>um again, not rooted in the facts, Mike. The CFPB

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<v Speaker 1>report also found that hundreds of millions of these contracts

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<v Speaker 1>include arbitration provisions and that companies have used the clauses

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<v Speaker 1>to keep fights out of court almost two thirds of

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<v Speaker 1>the time. Are there other problems with that? Yeah, I mean,

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<v Speaker 1>if this was so bad, if this was such a

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<v Speaker 1>good thing for the banks that they would now pay

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<v Speaker 1>less somehow. Um, it's weird that the banks opposed it

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<v Speaker 1>so much and consumer groups are so actively for it. Um.

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<v Speaker 1>You know, there is obviously a big bias. You know,

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<v Speaker 1>The New York Times investigated this and sound and found

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<v Speaker 1>quite clearly very few people will ever sue or go

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<v Speaker 1>to a court or try to go to arbitration over

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<v Speaker 1>something like twenty or thirty dollars. Now, it is true

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<v Speaker 1>that banks will often, you know, refund is because of

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<v Speaker 1>there's now much more active enforcement as a result of

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<v Speaker 1>the CFPB. But broadly, you want to think in terms

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<v Speaker 1>of what are avenues that people have to find remedies

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<v Speaker 1>against banks and they're not going to leave their bank

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<v Speaker 1>over twenty dollars, and especially if other banks may also

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<v Speaker 1>be committing the same kinds of problems. Raphael. Under the

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<v Speaker 1>Congressional Review Act, lawmakers have sixty legislative days from the

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<v Speaker 1>time they formally received the rule to overturn the bureau's decision,

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<v Speaker 1>and then they've used that to reverse fourteen rules from

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<v Speaker 1>the Obama administration. Will they be able to do the

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<v Speaker 1>same with this rule? Uh, they certainly should look into

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<v Speaker 1>doing that. UM. The question of you know, whether or

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<v Speaker 1>not they'll actually be able to do it is is

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<v Speaker 1>still up for debate. But I think they will and

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<v Speaker 1>I think they should. But even if they don't, this

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<v Speaker 1>rule is likely going to run into a lot of

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<v Speaker 1>litigation UM in opposition to it UM, and that litigation

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<v Speaker 1>is most likely going to be centered on the question

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<v Speaker 1>of whether or not the cfpb s own findings actually

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<v Speaker 1>support the promulgation of the rule. And Mike, the head

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<v Speaker 1>of the key banking regulator, wrote to the head of

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<v Speaker 1>the CFPB to raise concerns about the rule. Um the

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<v Speaker 1>controller of the currency asked that they share data used

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<v Speaker 1>to develop its arbitration rule. Tell me what the implications

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<v Speaker 1>of that are in about forty five seconds. Sure, So

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<v Speaker 1>there's obviously, as was just brought up, the Congressional Review

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<v Speaker 1>Act might be something that happens. The sentence very busy

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<v Speaker 1>with healthcare and soon to be tax reforms, so there's

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<v Speaker 1>a question the timing and a tough vote. The other

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<v Speaker 1>regulators could overrule the CFPP. The CFPP has this extra

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<v Speaker 1>accountability measure that two thirds of the regulators could overrule it,

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<v Speaker 1>and the o c c S actions could be understood

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<v Speaker 1>as a measure to try to gain support for that.

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<v Speaker 1>That is going to be a big lift, and it

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<v Speaker 1>is not clear whether or not that would work one

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<v Speaker 1>way or the other. Well, this will be something interesting

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<v Speaker 1>to watch. Thank you both for being with us here

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<v Speaker 1>on Bloomberg Law. That's Raphael Manuel, he's a legal policy

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<v Speaker 1>project manager at the Manhattan Institute. And Mike Gonzal, he's

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<v Speaker 1>a fellow at the Roosevelt Institute and founder of the

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<v Speaker 1>Roardy Baum Financial blog. That's it for this edition of

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<v Speaker 1>Bloomberg Law. Will be back tomorrow at one pm Wall

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<v Speaker 1>Street time, and hope you'll join us. Thanks to our

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<v Speaker 1>producer David Suckerman, and happy birthday to David and our

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<v Speaker 1>technical director Sean Kilby. You can always find the latest

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<v Speaker 1>dot com, plus a website for the legal community at

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<v Speaker 1>Big Law Business dot com. Coming up next, Bloomberg Markets

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