The Consumer Financial Protection Bureau Just Made Your Life Better

So many times better:

"The nation’s consumer watchdog is unveiling a proposed rule on Thursday that would restore customers’ rights to bring class-action lawsuits against financial firms, giving Americans major new protections and delivering a serious blow to Wall Street that could cost the industry billions of dollars." (link)

In the words of Richard Cordray, director of the Consumer Financial Protection Bureau:

“Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them.” (link)

As noted in a previous post covering The Nation's article How Consumers Are Getting Screwed by Court-Enforced Arbitration -- yes -- unfortunately -- this applies to you.

Sixth Circuit: Collective Action Waiver Unenforceable Without Arbitration Agreement

As covered by Workforce:

"The 6th Circuit held that the waivers were invalid. It concluded that any agreement that deprives one of his or her rights under the FLSA is invalid. Because the waiver deprived the employees of their right to participate in the collective action, it was invalid.

The employer argued that the at-issue agreement does not deprive anyone of any rights, since each employee is free to pursue an individual claim against the company for FLSA violations. The court, however, was not persuaded. Instead, the court concluded that because each employee’s potential claim for unpaid overtime was relatively small, the only real opportunity to pursue the alleged FLSA violation was via a collective action.

'Requiring an employee to litigate on an individual basis grants the employer [a] competitive advantage…. And in cases where each individual claim is small, having to litigate on an individual basis would likely discourage the employee from bringing a claim for overtime wages.'

As the Killion court points out, this decision now creates a split of authority between the 6th other Circuits. The Killion court also pointed out, however, that every other circuit that has decided this issue in the employer’s favor has done so because the agreements also contained arbitration clauses; the agreement in this case lacked that mechanism. It will be interesting to follow if this employer pursues this matter to the Supreme Court, and if that Court is interested in this important issue, or if other circuits follow Killion’s lead in the non-arbitration context." (link)

I think this paragraph puts it perfectly:

"Because no arbitration agreement is present in the case before us, we find no countervailing federal policy that outweighs the policy articulated in the FLSA.  The rationale of Boaz is therefore controlling.  Boaz is based on the general principle of striking down restrictions on the employees’ FLSA rights that would have the effect of granting their employer an unfair advantage over its competitors.  Requiring an employee to litigate on an individual basis grants the employer the same type of competitive advantage as did shortening the period to bring a claim in Boaz.  And in cases where each individual claim is small, having to litigate on an individual basis would likely discourage the employee from bringing a claim for overtime wages.  Boaz therefore controls the result here where arbitration is not a part of the waiver provision" (link)

In summary, a thoughtful and helpful decision from the Sixth Circuit.

Of course, most employment agreements attempting to waive collective action rights will also include mandatory arbitration -- particularly after this decision.  Nonetheless, at least some, like the one in this case, clearly do not. 

At least plaintiff's counsel have one more stone to throw at the arbitration Goliath.

The decision is available here.

The Nation: How Consumers Are Getting Screwed by Court-Enforced Arbitration

Yes, unfortunately, this applies to you:

"For more than forty years, the Supreme Court’s conservatives have been engaged in a campaign to shut the courthouse door to consumers, working people, small businesses and others seeking redress for corporate wrongdoing. 

In recent years, and especially since Chief Justice John Roberts and Associate Justice Samuel Alito joined the Court, a major weapon in this campaign has been the Federal Arbitration Act (FAA) of 1925. The conservatives have used the act to prevent victims of such abuses from seeking redress in the courts, forcing them into pre-dispute arbitration instead. In doing so, they lose a public trial, a jury and a neutral judge, as well as an appeal to a higher court; in many cases they may also have to give up discovery rights. It is not uncommon for them to wind up before an arbitrator who is dependent upon the defendant’s business community for work and fees, and who may not even be legally trained. Not surprisingly, those forced into arbitration almost always fare much worse than they would in court.

* * *

Two reports issued at the end of last year show how effective the Court’s arbitration rulings have been. Last December, the Consumer Financial Protection Bureau (CFPB) issued a preliminary report, which found that contract clauses mandating pre-dispute arbitration are a “common feature of consumer financial contracts”; a final report is due by year’s end. The agency found such clauses in over 50 percent of credit card loans, 81 percent of prepaid charge cards and in checking accounts covering 44 percent of all insured deposits."  (emphasis added). (continue reading)

When I first started to understand the scope of this issue and began taking a hard look at my various consumer contracts it was truly startling.  Even almost a decade ago, I found that the vast majority of my consumer contracts were subject to mandatory arbitration agreements.

For example, that huge bill AT&T sent you that was incorrect - perhaps because they charged you based on your previous plan even though you upgraded - if you can't get a decent customer relations person on the phone (a real risk) you can't challenge the charge in court.

That's something to really give some thought to as a consumer.  

Do you really want to have a contract with a company that is not willing to stand by the quality of its product and services in court?  If the answer to that is no - then there's a real problem -  some consumer industries do not offer a viable company you can use that does not use mandatory arbitration agreements.

If this is all a bit disturbing you may have good reason to get behind the stalled Arbitration Fairness Act. Take a look:

THE ARBITRATION FAIRNESS ACT OF 2013

Senator Al Franken

The ability of ordinary Americans to seek justice in our courts, even when up against the most powerful corporate interests, has become a fundamental element of our civil justice system. However, the growing use of forced arbitration provisions in consumer and employment contracts has eroded this essential function. Forced arbitration provisions thwart the ability of workers and consumers to hold corporations accountable for wrongdoing, even in the most egregious cases. (continue reading)