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[In progress]— in observations about what they are seeing and experiencing in consumer
finance in their own communities. Today's audience includes consumer and advocacy groups,
industry representatives, and, of course, consumers. We are also pleased to have in
attendance today, staff from the Texas Department of Banking, including Larry Walker and Mark
Sims, as well as Lisa Sherrod from the Office of Congresswoman Eddie Bernice Johnson and
Dallas City Councilmember Jerry Allen. Thank you all for joining us today.
Allow me now to briefly introduce the CFPB's Director, Richard Cordray. Prior to his current
role as the CFPB's first Director, he led the CFPB's Enforcement Office. Before that,
he served on the 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 help protect consumers from fraudulent foreclosures and financial
predators. Before serving as Attorney General, he also served as an Ohio State Representative,
Ohio Treasurer, and Franklin County Treasurer. Director Cordray?
RICHARD CORDRAY: I just want to make sure I knew where we were today, so . . .
[Laughter.]
RICHARD CORDRAY: Thank you, all of you, for joining us here today in Dallas. Every month
or so we try to hold an event outside of Washington, D.C., with the purpose of learning firsthand
about how consumer financial products and services are affecting people around the country.
Today, we are here to talk about arbitration, which is a way to resolve disputes outside
of the court system. Rather than take the issue before a judge or perhaps a jury, the
two parties turn to a third party, known as an arbitrator, to decide the dispute.
Many business contracts contain a "pre-dispute arbitration clause," which states that once
the contract is agreed to, the parties will resolve all future disputes through arbitration,
rather than through the courts. More recently, many contracts for consumer financial products
and services have been written with such arbitration clauses as well. Arbitration is often described
by supporters as a "better alternative" to the court system, more convenient, more efficient,
and a lower-cost way of resolving disputes. Opponents argue that arbitration clauses deprive
consumers of certain legal protections available in court and may serve to quash a dispute
rather than provide an alternative way to resolve it.
There is a long and interesting history in this country of the relationship between arbitration
and the judicial system as alternative means of resolving disputes. In 1925, Congress first
enacted the Federal Arbitration Act to make written agreements to arbitrate certain disputes,
including those arising out of contracts, enforceable in the courts. Rather than obtaining
a legal judgment from a court, parties to an arbitration agreement would be bound by
an arbitration award, which could be confirmed, but generally not reviewed or overturned,
by a court.
The new federal law was explicitly enacted to address previous judicial hostility to
arbitration agreements, which had been held by many courts to be revocable at any time
by either party. Indeed, some courts had sought to protect their own jurisdiction by rejecting
arbitration clauses outright and finding them to be void in violation of public policy.
For four decades after the Federal Arbitration Act was adopted, the federal courts maintained
a skeptical and restrictive view of arbitration. In 1953, for example, the Supreme Court held
that arbitration clauses could not be used to waive the right to a federal judicial forum
granted under substantive federal statutes such as the securities laws. The heart of
the Court's position was that the buyer of a security was being required to give up an
advantage granted to him under the federal law at a time when he was at a disadvantage
in terms of knowledge.
Starting in the late 1960s, however, the law took a dramatic turn, and over the next couple
of decades, the Supreme Court expressly overruled much of the prior case law in this area. During
this period, which extends to the present day, the Court revised its previous views
of the Federal Arbitration Act. In fact, it has now determined that the statute evinces
a core policy favoring arbitration as a means of resolving disputes, including where the
matters at issue are governed by various other substantive federal and state laws.
As judicial doctrine on arbitration has evolved, though, one basic premise of that doctrine
has become clear. It is Congress that has the authority to adopt laws to regulate dispute
resolution procedures in the manner that it deems most conducive to the administration
of justice. Where Congress addresses arbitration as a method of dispute resolution, either
generally or in particular federal statutes, then the courts must follow its lead.
The Dodd-Frank Act is one such statute in which Congress diverged from the general policy
of favoring arbitration, as expressed in the Federal Arbitration Act. In section 1414 of
the Dodd-Frank Act, Congress expressly prohibited the inclusion of arbitration clauses in most
residential mortgage loan contracts. In section 921, Congress gave the Securities and Exchange
Commission the authority to prohibit or restrict use of such clauses for certain disputes,
if it finds that doing so would be in the public interest and for the protection of
investors. And in section 1028, Congress expressly addressed the applicability of pre-dispute
arbitration clauses in connection with the offering or providing of consumer financial
products or services.
The statute establishes a clear procedure to be used to determine whether such agreements
should be prohibited, conditioned, or limited in any way. First, the Consumer Financial
Protection Bureau is to conduct a study and provide a report to Congress concerning the
use of such agreements. Second, the Bureau may adopt regulations that prohibit or impose
conditions or limitations on the use of such agreements if it finds such measures to be
in the public interest and for the protection of consumers and such findings are consistent
with the study that the Bureau has conducted.
That's what brings us to the subject of today's discussion. In the world of consumer financial
products and services, these clauses are quite common. If you were to look in your wallet
right now, the chances are high that one or more of your credit cards, debit cards, or
prepaid cards would be subject to a pre-dispute arbitration clause. The clauses are contained
in standard-form contracts, where the terms are not subject to negotiation. Like the other
terms of most consumer financial products, they are essentially take-it-or-leave-it propositions.
Consumers may open a new account or take on a new product without being aware of what
the contract says or without fully understanding its implications.
We have begun the arbitration study mandated by Congress, and we now have a first round
of preliminary findings to present for general consideration. We have also narrowed and specified
many of the remaining areas on which we are most likely to focus as we complete our work
to issue the required report to Congress. Although we have more work ahead of us, we
know this is an important topic in the realm of consumer finance. So we wanted to share
some of our initial research in order to facilitate a broader discussion about issues such as
where these clauses are found, what they say, and what we have learned about arbitration
filings by consumers.
To date, we have focused on a few key consumer markets, including credit cards and checking
accounts. One of our most notable findings about arbitration clauses in these markets
is the stark contrast in the types of institutions that use them. On the whole, larger institutions
are more likely to include an arbitration clause in consumer contracts than community
banks or credit unions. That raises interesting questions about why smaller institutions and
credit unions do not use arbitration clauses as frequently in these markets.
While arbitration clauses are more common from larger credit card or checking account
issuers, the same cannot be said about prepaid cards. Perhaps because it is a newer or more
highly concentrated market, we found that arbitration clauses are very common across
all prepaid card contracts, regardless of whether they are offered by a larger or smaller
player. In fact, smaller players are much more likely to use arbitration clauses in
prepaid card contracts than they are in credit card or checking account contracts.
Our study looked not only at which institutions use arbitration clauses, but also what these
clauses say. Regardless of who was using them, arbitration clauses in credit card agreements
were almost always more complex and written at a more demanding grade level of readability
than the other parts of the contracts we studied. In fact, in every case, the rest of the credit
card contract scored better in terms of readability than did its arbitration clause considered
alone.
More than 90 percent of the arbitration clauses we looked at explicitly bar consumers from
participating in class arbitrations. The few clauses without this express limitation were
in smaller bank contracts, meaning that almost all of the consumers who are subject to arbitration
provisions are effectively precluded from participating in class proceedings, whether
in court or in arbitration. We plan to spend more time analyzing and considering class
actions in the second phase of our study.
Although about one-quarter of the clauses contained in checking account and credit card
contracts allow consumers to opt out of the arbitration requirement, for those that allow
it, consumers usually have to submit a signed document by mail within a set time frame,
usually 30 or 60 days from when the account was opened or the agreement was mailed.
A consumer who wants to resolve a dispute through arbitration generally must file with
the private arbitration organization that is named in the clause. For the consumer financial
products we have received—reviewed, the named organization is typically the American
Arbitration Association, called the "triple A." We have obtained records on all consumer
arbitration cases filed with the AAA between 2010 and 2012. There were about 1,250 such
filings about credit cards, checking accounts, payday loans, and prepaid cards. About 900
of those were filed by consumers. The rest were filed by companies, or in some instances,
the consumer and the company filed together. The vast majority of these filings were about
credit cards. In most cases, the consumers were represented by counsel. In virtually
all cases, the companies were. Almost all filings involved individual consumers. Only
two class arbitrations were filed for these product markets.
Although we have some way to go in looking at litigation alternatives, we have identified
more than 3,000 federal court cases filed by consumers over the same period from 2010
through 2012 about credit card issues alone. That includes more than 400 class actions
in which one or more individuals may seek relief on behalf of many other consumers as
well, sometimes even millions of other consumers.
For those consumers who do use arbitration, we observed that very few of them actually
filed arbitration claims for small-dollar amounts. For example, there are almost no
disputes over amounts less than $1,000. A number of arbitration clauses come with a
carve-out for small claims, meaning that both the company and the consumer retain the option
to use small claims courts, rather than the arbitration process, to resolve such matters.
So these carve-outs could explain why there are very few small-dollar arbitration filings.
Yet our preliminary analysis casts doubt on this hypothesis, for it indicates that at
least when it comes to credit card disputes, consumers do not appear to file many cases
in small claims court. Indeed, we found the cases filed in small claims court are much
more likely to be brought by banks than by consumers.
As an initial step in comparing the benefits to consumers from arbitration and class action
litigation, we have identified a number of class actions involving credit cards, deposit
accounts, or payday loans that were settled since July 2009 and where the contract at
issue allowed for arbitration before the AAA. Consumers who were members of the classes
in these cases had the option of opting out of the class settlement and bringing their
own case through arbitration. In such cases, as we have identified thus far, more than
13 million class members made claims or received payments under these settlements, whereas
3,605 individuals opted out. At most, only a handful of these individuals who opted out
chose instead to file an arbitration claim.
One significant takeaway from these various points is that few consumers use arbitration
at all, at least when compared to the number of consumers involved in lawsuits and class
actions. In the second phase of our study, we will seek to obtain a better understanding
of what explains the incidence and nature of arbitration claims, including small-dollar
claims. We will look to see what happens to arbitration filings and endeavor to compare
what we see happening in arbitration to what we see happening in litigation, including
class litigation.
Those are challenging comparisons to make for a variety of reasons, but we intend to
engage in a thoughtful process in order to understand how arbitration clauses affect
both consumers and businesses. We also are proposing to conduct a survey of consumers
in the credit card marketplace to determine such matters as whether they are aware of
the terms of arbitration clauses, whether they make assumptions about their legal rights
under the terms of these clauses, and whether they factor the existence of these clauses
into their decision-making process about obtaining or using particular consumer financial products
and services.
These are only some of the areas we will be pursuing before submitting our report to Congress.
We recognize that Congress intends the results of this study to be the basis for important
policy decisions that the Consumer Bureau will have to make in this area.
And so today, we invite you to share your thoughts on that process and about these issues.
Tell us about any experiences you have had with arbitration clauses and share your input
on these issues. At the Consumer Bureau, we are dedicated to a marketplace characterized
by fair, transparent, and responsible business practices. We believe that strong consumer
protection is an asset to honest businesses, because it ensures that everyone is playing
by the same rules which supports fair competition. We also envision a marketplace where educated
consumers can make well-informed decisions about their financial affairs. We look forward
to a robust and vigorous discussion today, which will bring us one step closer to achieving
that vision. Thank you.
[Applause.]
ZIXTA Q. MARTINEZ: Thank you, Director Cordray. At this time, I would invite all our panelists
to please take the stage, and while they are doing so, I am going to introduce them.
Meredith Fuchs joined the CFPB in 2011 as Principal Deputy General Counsel before serving
as Chief of Staff to Director Cordray. Prior to joining the CFPB, she served as Chief Investigative
Counsel of the U.S. House of Representatives Committee on Energy and Commerce. She now
serves as the Bureau's General Counsel.
Will Wade-Gery is Senior Counselor in the Division of Research, Markets, and Regulation.
Prior to joining the Bureau in 2011, he was a financial services partner in the New York
offices of Morrison & Foerster, LLP.
Our guest panelists include Ellen Taverna, Legislative Director of the National Association
of Consumer of Advocates; Richard Frankel, Associate Profess or Law, Drexel University
School of Law; Christine Hines, Consumer and Civil Justice Counsel, Public Citizen; Scott
Shea, Senior Counsel with Nissan Motor Acceptance Corporation, representing the American Financial
Services Association; Jess Sharp, Executive Director, Center for Capital Markets Competitiveness,
with the U.S. Chamber of Commerce; and Shannon Phillips, Deputy General Counsel with the
Independent Bankers Association of Texas.
Meredith, you have the floor.
MEREDITH FUCHS: Thank you, Zixta.
Thank you all for coming here today. As you've heard, we are here today to address an important
consumer issue: arbitration as it relates to consumer financial matters; and in particular,
pre-dispute arbitration clauses. When you, the consumer, obtain a financial product or
service, like a credit card, a payday loan, a checking account, a prepaid card, and so
on, you generally receive a written contract from the company involved. That isn't true
for all your other transactions. You don't generally receive a contract when you go and
buy groceries or you to go the movies or you buy your gasoline, but you do when you receive
a consumer financial product, the products that my agency is concerned about.
As Director Cordray noted, in some cases, not in all cases, those contracts for consumer
financial product or service contain a pre-dispute arbitration clause. Generally, these clauses
say if a dispute arises between the company and the consumer or the consumer and the company,
either side has the right to have the dispute resolved not in a court of law but in an arbitration.
This may be why the clauses are sometimes called "mandatory." Either side can mandate
the use of arbitration, even if the other side would prefer to go to court, and they
are known as "pre-dispute clauses," because the parties sign onto the contract before
any dispute has arisen.
As more and more companies have added these clauses to their contracts, the use of these
clauses has become quite controversial. Opponents of arbitration—and I'm sure we have some
of those here today in the audience—say that these create an unfair process because
they eliminate important procedural protections and may be biased against consumers. They
also contend that arbitration clauses, by eliminating class actions or by reducing the
opportunity for discovery, may effectively immunize companies from a range of private
civil liabilities. Finally, critics say that arbitration, which is almost always conducted
in private, undermines transparency in the rule of law.
In contrast, proponents of arbitration, who are also represented here today, say arbitration
is faster, more efficient, more cost effective for all the parties than the court system.
They argue the cost savings it creates benefits consumers in terms of lower prices, and they
contend that while arbitration may impact class proceedings, such class proceedings
typically are meritless, inefficient, and provide little or no benefit to consumers.
In short, they argue that arbitration is a better—for consumers and for companies—alternative
than going to court.
As you can see, there is quite a difference of opinion, and so we're here today to hear
more about those views from the different sides and from you, the wider public. We are
going to start today with brief remarks from each of our panelists, starting with Ellen
Taverna and moving across the panel. So, Ellen, why don't you start.
ELLEN TAVERNA: Thank you for inviting me to participate today. My name is Ellen Taverna.
I'm the Legislative Director of the National Association of Consumer Advocates, a national
nonprofit organization representing thousands of consumers victimized by fraudulent and
abusive corporate practices.
We have seen time and again how forced arbitration directly impacts the lives of American families
and our nation's servicemembers. Imagine returning home from a war zone only to find you have
no home to return to. Consider this recent case of a U.S. military servicemember. While
he was on active duty for our country, a national mortgage lender foreclosed on his home, despite
the fact that there's federal law, the Servicemember Civil Relief Act, clearly stops foreclosures
while a servicemember is on active duty. Nonetheless, the mortgage lender sold the servicemember's
home while he was deployed in Iraq. It's in clear violation of a federal law. When this
servicemember tried to enforce his rights under the law, he found that a forced arbitration,
buried in the fine print of his mortgage contract, would not allow him to hold the lender accountable.
Because of a forced arbitration clause, he lost his right to a day in court and his constitutionally
guaranteed right to a jury trial.
All Americans' financial security is at risk here. Years of research already establishes
how harmful forced arbitration is to consumers. The CFPB's study today further demonstrates
that forced arbitration clauses have become standard business practice in contracts for
financial products like payday loans, credit cards, and checking accounts. Consumers have
absolutely no idea that just by purchasing a financial product, they are giving up constitutional
rights by waiving access to the court system. Forced arbitration strips consumers of fundamental
rights, such as the right to a trial, a right to a jury, and the right to join with other
consumers to hold corporations accountable. Across the board, the CFPB's study demonstrates
arbitration clauses give businesses the license to steal.
How is this possible? It's because corporations get to write all of the rules for the arbitration.
Only the corporations get to control who the arbitrator will be, under what rules the arbitration
will take place, the state the arbitration will occur in, and the payment terms for the
arbitration. When banks write the rules, consumers lose every time.
One egregious example required a disabled consumer who lives in New York to travel across
the country to Arizona. Let me repeat this. She is a disabled consumer, and she has to
travel across the country to Arizona to argue to an arbitrator that it's cost prohibitive
and unconscionable for her to force her to arbitration her case in Arizona. And because
this arbitration forum is typically chosen by the corporation, arbitrators have an incentive
to rule in the corporation's favor if they want to be selected by the corporation again
in the future.
To make matters worse, forced arbitration is almost always conducted in secret. For
example, later this month, a forced arbitration proceeding is to commence in California involving
an 82-year-old cancer patient's case against a lender. This is challenging a 94 percent
APR car title loan that he was told was only 8 percent and for which he had to turn over
as collateral his sole asset, a classic car. Because of forced arbitration, these facts
will never be publicly known, and the lender will be free to cheat other elderly consumers
in the same way.
Recent Supreme Court decisions have spurred the widespread use of abusive forced arbitration
clauses. In 2011, the Court held that corporations may use arbitration clauses to deny consumers
their right to join together in class actions to hold corporations accountable. CFPB's study
today reveals that about 90 percent of arbitration clauses now expressly bar consumers from joining
together as a class. This has an enormous impact on consumers, where the value of claims
can be small individually, but large in the aggregate, and class actions are the only
way of revealing widespread corporate fraud. As a consequence, it's not economically feasible
for consumers to individually file claims in any forum, arbitration or court, and banks
get off scot-free.
On behalf of all the consumers and servicemembers whose rights have been decimated by forced
arbitration, I urge the Bureau to complete a study as quickly as possible, so that it
can initiate rulemaking to eliminate forced arbitration clauses from consumer financial
contracts. Thank you.
MEREDITH FUCHS: Thank you, Ellen. Richard?
RICHARD FRANKEL: Director Cordray, members of the Bureau, thank you for inviting me to
participate in this important dialogue regarding binding mandatory arbitration. I want to applaud
the Bureau for the time it has dedicated to undertaking such a thorough and detailed and
thoughtful preliminary analysis of arbitration in the financial services area.
While the current system of binding mandatory arbitration may have once been motivated by
the desire to create a speedy and efficient alternative to court, it has exploded in recent
years and transformed far beyond its original purposes and most often in a way that harms
rather than helps consumers. Arbitration clauses have become commonplace, particularly in the
field of financial services. They are common in contrast for checking accounts, credit
cards, payday loans, and other services.
And while Meredith mentioned that you don't yet have to agree to arbitrate when you buy
your groceries, I actually recently just read an article by a group of defense lawyers actually
recommending that companies slap arbitration clauses onto food labels, so that when you—if
you happen to buy tainted meat at the grocery store, you are now going to have to proceed
in arbitration, so that may be actually coming down the line.
Arbitration clauses are often buried in fine print, using complicated and difficult-to-understand
language, or sometimes they are included well after the fact in change-of-terms bill stuffers
that consumers receive in the mail well after they have signed up for the financial product
or service. They often don't realize that their contracts contain arbitration clauses
when they are purchasing a service, and they don't discover this until the dispute actually
arises and they learn that they actually cannot go to court, and they have to require to submit
to arbitration. This is not the system of knowing and voluntary agreement to opt out
of court that arbitration was intended to be.
I think these facts are significant because arbitration has changed from a system designed
to provide individuals with an alternative form of justice to one that often denies them
any access to justice at all. Companies often write arbitration clauses in ways that stack
the deck in their favor. Most notably, they ban class actions in other forms of collective
relief, which enable them to violate the rights of thousands or even millions of consumers
with virtual immunity from any sort of prosecution. They may limit damages recovery, shorten statutes
of limitations, impose high cost on consumers, and insulate themselves from any meaningful
form of judicial review of the arbitrator's decision. The result of the preliminary study
show that very few consumers initiated an arbitration I think confirmed the denial to
access to justice that occurs through the use of arbitration.
And while courts used to police some of the worst abuses of the arbitration system, I
think that has changed as the Supreme Court has upheld some of the more claim-suppressant
aspects of arbitration clauses in recent years. The Court's full-throated endorsement of arbitration,
even when it's expressly acknowledged that arbitration clauses will prevent individuals
from vindicating their rights, it is going to likely cause I think even more consumers
to use arbitration clauses—or more companies to use arbitration clauses in the future,
and that's why I think it's that much more important for agencies like the Bureau to
do the kind of work they are doing and determine whether regulations necessary in the best
interest of consumers. Thank you.
MEREDITH FUCHS: Thank you, Richard. Let's turn to Christine.
CHRISTINE HINES: Thank you. I am grateful to be here today on behalf of Public Citizen.
Thank you to the CFPB for conducting this forced arbitration study.
While the study is required by statute, this data has been both illuminating and validating.
The widespread use of forced arbitration clauses in everyday contracts is one of the most critical
threats to consumer rights today. During the negotiation of the Dodd-Frank Act, consumer
advocates strongly supported the legislation and fought hard to ensure that the new agency,
the CFPB, would have the opportunity to fix this national problem of forced arbitration
in the consumer financial services sector.
It's important that we as consumers have the ability to enforce our rights as we maneuver
around in a changing and complex financial marketplace. Based on the CFPB's data release
today, it is clear that institutions that dominate the financial services market use
forced arbitration clauses in their consumer contracts and that very few consumers bring
their claims in secret arbitration. Consumers prefer the court system. It's clear that these
clauses suppress legal complaints against financial institutions, rob the public of
information about wrongdoing, and halt the development of our consumer laws.
At Public Citizen, we are concerned about sophisticated parties with superior bargaining
power who get to write rules restricting individual's basic constitution right to a civil jury trial
and then bury those rules in the dense fine print of their take-it-or-leave-it contracts.
Over the years, we have gathered and shared information about consumers who were unable
to file lawsuits after being defrauded or cheated by unlawful or predatory corporate
practices. We believe that the Federal Arbitration Act, which governs arbitration, has been interpreted
to the point where that law has warped all sense of fairness or justice and has given
corporations a Get Out of Jail Free card.
As we have observed over the last several years, the mere existence of an arbitration
clause in a contract has simply crushed consumer claims. Corporations can collect a small amount
of money from millions of consumers, such as illegal fees or exorbitant interest rate
charges in lending transactions. It makes no economic sense for a single consumer to
take on these claims on her own, and when these contracts contain forced arbitration
clauses and class action bans, the consumers cannot go to court to seek redress, and the
result is a huge and undeserved windfall for the violators.
Judges who have reluctantly dismissed consumer lawsuits have commented that the harm the
consumers may have suffered in these cases would have been better addressed in class
actions, partially because the only other option was that the claims would not be addressed
at all. If we can bring our grievances to a public court, not only can we obtain recovery
for losses, but our private actions increase the chances the state and federal agencies
will investigate and become aware of widespread or misconduct, or maybe that journalists will
report these cases and present important issues to the public.
When Dodd-Frank passed in 2010 authorizing the CFPB to ban forced arbitration, the state
of the law on arbitration was bad, but it's dire now. Since then, over the last several
years, Supreme Court precedent has put a buzz saw on consumers' rights. Would the 2010 Dodd-Frank
Congress have banned forced arbitration outright in all consumer financial services if they
knew how severe matters would become? The lack of corporate accountability was considered
a major factor in causing the 2008 financial crisis. The ongoing purging of consumers'
legal remedies that's occurred since then probably would have been a red flag for lawmakers,
a warning that corporate accountability could decline even more if consumers who are on
the front lines buying financial products and services could not band together to sue
a company for wrongdoing that injured them.
Fortunately, Congress gave us the CFPB and the CFPB authority to act, and there remains
hope that the agency will restore our rights and protect us from this deeply unfair practice.
MEREDITH FUCHS: Thank you, Christine. We are going to move over to this side not to Shannon.
Thank you.
SHANNON PHILLIPS: Thank you. Thank you for allowing me to be here today. I represent
the Independent Bankers Association of Texas. We're an association of about 450 member banks,
cut banks ranging in size from 20 million in assets to about $15 billion, with the majority
of them being under $500 million in assets. We do appreciate the opportunity today to
testify—or to comment, I should say.
As noted above, the IBAT membership is diverse with a large number of very small to medium-size
banks. Most of those institutions do not currently use arbitration clauses in their standard
agreements. Their documents typically are produced by software platform systems. The
most common of these in Texas does not include consumer arbitration provisions in documents
but provide for a separate stand-alone agreement.
Further, many of the medium-size banks are evaluating the need for arbitration provisions
in their agreements at this time. The largest community banks do include consumer arbitration
agreements within their deposit accounts and other documents. IBAT believes it's critical
to retain their flexibility for community banks of all sizes to appropriately use well-drafted,
fair arbitration agreements, and we do mean that. We do mean well-drafted and fair.
In the recent Supreme Court case, AT&T Mobility v. Concepcion, the decision provided businesses
with a template for fair arbitration provisions and consumer contracts. In that case, AT&T's
agreement included a reasonable venue provision, the business bore the cost of arbitration,
and the consumer would receive a stipulated damage award if he prevailed, rather than
merely actual damages. IBAT would suggest that this development has provided consumers
with adequate protections and assured further that arbitration is fair to consumers.
In Texas, community banks have seen firsthand out-of-control class actions can be used to
the advantage of the plaintiff's bar without real benefits to the consumers. Numerous class
actions have been filed complaining, actually sometimes erroneously, that signs were missing
from ATM machines related to fees for noncustomers. Although this technical violation of Regulation
E—excuse me. Although this is a technical violation of Regulation E, the consumers cannot
proceed with a transaction without receiving a very specific message on the screen as to
that fee and then clicking a button to accept the fee. Congress has fixed that issue with
legislation that took away the necessity for a physical sign, in addition to on-screen
notification of fees; however, it's just an example of how out-of-control class actions
or out-of-control plaintiff's lawyers can take advantage of regulations.
We are also concerned of the CFBP relating to mandatory arbitration's clauses could result
in an indirect amendment to the Federal Arbitration Act. In turn, this would create a bifurcated
system, special rules for financial services companies, and clear federal law as approved
by the United States Supreme Court for all other parties. Although the study and review
is directed to arbitration, we have concerns that it could also affect all alternative
dispute resolution options.
Alternative dispute resolutions in Texas state courts, which includes arbitration, is governed
our Civil Practice and Remedies Code, which officially sets the procedures that can be
used. Generally, mediation, mini trials, and moderated settlement conferences create a
privilege of mediation and alternative dispute resolution proceedings and sets strictly enforced
limits on forcing mediators to testify. The decision whether to set a case for mediation
generally lies in the individual state court, but Chapter 152 of the Civil Practice and
Remedies Code allows counties to establish a mediation system.
Most urban Texas courts utilize mediation alternative dispute resolution as an effective
means of reducing their workload. These courts rely on Chapter 154 of the Civil Practice
and Remedies Code as authority for doing this. Without alternative dispute resolutions, Texas
would need to establish many more civil courts at a significant cost, both to taxpayers and
litigants. It is our understanding that many other states have similar state laws and practice.
Any eventual CFPB prohibition on pre-dispute arbitration and consumer transaction would
clearly run counter to the state court efforts to reduce the caseloads of state courts.
I will say when I first started practicing law, there was an attorney, an older attorney
who talked to me. I was getting involved in some mediation, and he told me he didn't like
mediation because it was taking money out of his pocket. He was not at all concerned
with the consumer. He was concerned with the consumers not coming to attorneys and paying
them to take these matters to court.
I would like to say in conclusion that if after studying the issue, the CFPB determines
that it must regulate the utilization of pre-dispute arbitration in consumer transactions, we would
urge them to use an approach supported by the U.S. Supreme Court in Concepcion and require
reasonable parameters for consumer transactions.
For example, the CFPB could focus its regulation requiring arbitration clauses to be clear
and conspicuous, and that consumers voluntarily agree to pre-dispute arbitration. And I have
to say I have seen arbitration clauses that are not clear and conspicuous, and I have
to say I have also seen arbitration clauses that are clear and conspicuous.
I want to thank you for your consideration.
MEREDITH FUCHS: Thank you. Let's move on to Jess.
JESS SHARP: Good morning. My name is Jess Sharp with the U.S. Chamber of Commerce. Thank
you for having me here to participate in this event this morning.
I think the fundamental question before us and the CFPB is how do the different dispute
resolution options stack up against each other in terms of the consumer benefits. We've heard
a lot this morning about sort of the inputs, but I really think at some point, we need
to focus a little bit more narrowly on the outputs. Are consumers better served in the
final results under class actions, under arbitration, when they go to court?
Ultimately, legitimate businesses want the same thing from a dispute resolution system
that consumers do, a way to vindicate legitimate grievances that works in the real world, not
just in theory, a system in which the money expended is focused on compensating legitimate
claims, not on legal fees to either side, and a system that can't be gamed by lawyers,
again, on either side, and we think arbitration meets this test. It's quicker, it's cheaper
and more efficient than litigation in court, and therefore provides access to justice for
claims that consumers could not pursue in court.
Studies have shown that consumers do as well or better in arbitration as compared to court,
again, thinking about the results. Arbitration also reduces transaction cost for businesses,
which can help them charge lower prices. Now, we've documented each of these points extensively
in a 58-page comment letter we recently submitted to the CFPB.
Now, with respect to the preliminary results that have just been released, obviously there's
a lot to digest, and I can assure you that we'll take the opportunity to continue to
comment and take you up on your offer for us to do so, but I've got a couple quick preliminary
reactions to the preliminary results, and the first is the finding that most arbitration
agreements use the AAA to resolve disputes is a good thing. I think they are viewed as
the gold standard in the industry, so I think that's a good fact to have out on the table.
And then although—this goes back to results—although the Bureau's analysis of claims filed in the
past may be useful, a critical question not addressed that now must be is how well these
methods work for the types of claims consumers have. In other words, if I'm a consumer with
a claim, what is the relative accessibility cost, fairness, and efficiency of the different
methods of dispute resolution?
Third, the focus on the number of claims filed also ignores a critical step in the dispute
resolution process. Not everything gets to arbitration. The CFPB has created a Consumer
Complaint Database and multiple ways in which the Consumer Financial Protection Bureau actually
serves as an intermediary to get relief for consumers on sort of a—on a fairly quick
turnaround, and I think companies, not just as a result of the CFPB's consumer complaint
portal, but obviously, it's in the company's interest to resolve everyday disputes as quickly
and as efficiently as they can, so not everything even needs to rise to the level of a formal
arbitration. So I think there's a story to tell beneath that level of 900 arbitrations
that you found in your study.
The last point is the report mentions that arbitration agreements typically preclude
class proceedings. That's come up a number of times this morning. That argument poses
an important policy question, again, back to my results point earlier. Should consumers
lose the benefits of arbitration, in particular, the ability to pursue individual claims that
cannot realistically be pursued in court, in order to protect class actions? We believe
the answer is no for two basic reasons. Consumer class actions delivery at best minimal benefits
to most consumers. We submitted to the Bureau, in addition to our comment letter, a fairly
extensive study of class actions that we hope you will take a look at that focuses on the
results and the benefits to consumers. And really, then punch line there is none of the
class action study results in a trial or in a judgment for the plaintiffs on the merits.
Most class actions are either dismissed voluntarily by one side or the other. Class members don't
benefit in these situations, and the remaining minority of class actions that are settled
on a class-wide basis, only a very, very small percentage, as low as less than 1 percent
of those who could file a claim, actually do. There is very little recovery through
a class action. So, again, consumers really aren't benefiting. Someone else is, but they
are not consumers through class actions, so we should be careful about putting class actions
on a pedestal as the preferred alternative here.
So thank you. Sorry I went a little over my time, and I'm happy to take questions.
MEREDITH FUCHS: Great. Thank you, Jess. Let's turn to Scott. Thank you.
SCOTT SHEA: Thank you, Meredith. Good morning, everyone. It's still morning for a few more
minutes. I'm Scott Shea. I'm the Senior Counsel of Consumer Finance Compliance at Nissan Motor
Acceptance Corporation. I am speaking today on behalf of the American Financial Services
Association, or AFSA, the national trade association for the consumer credit industry, one of whose
goals is protecting access to credit and promoting consumer choice in credit opportunities. AFSA
encourages and maintains ethical business practices and supports financial education
for consumers of all ages. AFSA's 350-member companies include consumer and commercial
finance companies, vehicle finance companies, credit card issuers, mortgage lenders, industrial
banks, and other financial service firms that lend to consumers and small business.
Today, I focus my remarks on the benefits of arbitration and the ways that the CFPB
could improve its arbitration fact-finding study, which we understand is moving into
its next phase. A number of published studies in arbitration show that consumers prevail
more often than businesses in cases that go to arbitration. The majority of consumer arbitrations
result in monetary or nonmonetary recovery for the consumer. Arbitration is quicker than
bringing a lawsuit in the crowded and overburdened federal and state court judicial system. Consumers
may file and pursue arbitration at minimal cost. In sum, when compared to lawsuits arbitration
is a fair, quick, and inexpensive option for consumers.
AFSA is concerned that the CFPB will use the study results to improperly restrict the use
of arbitration agreements. Regarding the supposed complexity of the arbitration provision in
contracts, AFSA believes that consumers do not need to memorize the dispute provisions
in their agreements. They only need to be able to find the provision when they need
to. Many consumers have brought arbitrations, meaning they are able to find the necessary
information and engage the process.
The CFPB's study should focus on whether pre-dispute arbitration or litigation or class action
litigation gives consumers a better chance to tell their stories in front of a fair decision-maker,
which is ultimately what consumers want. To this end, the CFPB should also carefully study
the speed of reaching decisions and the costs of pre-dispute arbitration compared to litigation.
Additionally, the CFPB should contact and interview consumers who have used the arbitration
process to address their disputes to determine their level of satisfaction with the process.
We believe that the CFPB will find a higher satisfaction level from these consumers as
opposed to consumers who were included in a class action litigation, which, by the way,
the CFPB should also study to adequately assess the value of arbitration.
Thank you for inviting me to participate in today's hearing. AFSA is committed to assisting
the CFPB in conducting a comprehensive study with accurate and meaningful results. Thank
you.
MEREDITH FUCHS: Great. Thank you all for extremely thoughtful opening remarks. We are going to
do some questions now, and I am going to start us off with a question for Christine and Richard
and Ellen. My question is—we've heard lots of interesting perspectives so far—do you
think that the average consumer should be concerned about arbitration provisions, and
if so, why?
ELLEN TAVERNA: I mean, I think that every American's financial security is at risk here.
I think that what these forced arbitration clauses do is that they eliminate consumer's
right to go to trial, and they give the corporations a license to steal and violate the law. I
think, yes, definitely consumers should be concerned. They should be outraged. I know
that I am outraged as a consumer, as a mother, when I am looking to buy a financial product
or outside the realm of what the CFPB is looking at, any real product that I am forced to go
to arbitration, and I am not able to use my constitutional right to go to court for a
jury trial, and that the company escapes complete accountability.
And we know that other consumers believe this as well. We have initiated a petition along
with Texas Watch and Take Justice Back , that over 18,000 consumers have signed this petition
urging the CFPB to restore accountability by banning forced arbitration. I think that
consumers, they need to know—and that looking at the CFPB study—that, basically, these
corporations are given a Get Out of Jail Free card for having these arbitration clauses
in them.
RICHARD FRANKEL: I also agree that consumers should be concerned. I mean, generally, if
you are wronged, the right to go to court to remedy that wrong is guaranteed by the
Constitution. I think anyone should be concerned when they are required to sacrifice a constitutional
right as a condition of signing up for a credit card or checking account or any other product,
and I think that's all the more so, based on the results of the study here, which show
that the language of the arbitration clause is harder to understand than the rest of the
language written in the contract, suggesting that consumers may not even—if they do know
that there's an arbitration clause, they may not even understand its implications.
We have heard a lot of discussion about—some discussion about there's ways in which arbitration
clauses may be unfair, arbitration procedures are secret, there may be a repeat player bias,
but I think another reason to be concerned is that corporations' own behavior, the corporation
that drafts the arbitration clauses, show that they are also concerned about it. There
is some data that suggests if you look at an arbitration clause between a company and
another company, ones that are negotiated at arm's length that are not on a take-it-or-leave-it
basis, that suggests that the arbitration clauses are much less common in those contracts
than they are in contracts with consumers, suggesting that when they have a chance to
negotiate about it, they don't actually want to use arbitration, or the class action bans
that are in arbitration clauses are written in a way to be non-severable, so that if the
class action ban is declared unenforceable, the whole arbitration clause goes away.
And what that suggests to me is that companies like arbitration clauses when they keep claims
from being—disputes from being resolved at all, but if a dispute is going to be heard,
they want it to be heard in court, not in arbitration, because companies are concerned
about the limited procedural protections, the limited judicial review of arbitration,
and so if they lose the class action ban and there is going to be a class action, they
want it in court, not in arbitration.
MEREDITH FUCHS: Christine.
CHRISTINE HINES: In a word, yes. In 2009, at Public Citizen, we did a survey of consumers
on—related to forced arbitration, gave them the two—gave them what I'll call the "big
business arguments" for arbitration and also the consumer arguments, and consumers across
the political spectrum, across all colors, across economics, they all—well, the majority,
the majority of these consumers did not favor forced arbitration. They opposed it.
And the most troubling thing about that survey was that most of these consumers did not know
that their basic—it's just a basic constitutional right. It's basic, like the First Amendment.
Everybody knows what the First Amendment is. It's the Seventh Amendment. Everybody knows
that they have a basic constitutional right to a civil jury trial, and I think if you
were to step out onto the street and ask just a random person whether they knew that corporations
can just—there is this dense information in a contract that says they cannot pursue
claims in court, I think they would be shot, and should they be concerned? Yes, they should
be concerned, but because they don't know, most consumers are just not aware. They would
be concerned. It's not really a matter of "should." I think they just would be concerned
if they were aware of it.
WILL WADE-GERY: Thanks, Christine. I am going to turn it back to Shannon.
We have heard a lot about arbitration, generally, this morning. In your view, are there particular
markets or products where arbitration clauses are particularly helpful to consumers or to
companies?
SHANNON PHILLIPS: Actually, I don't think there's any particular markets or products.
I think really the focus should be on the relief and the process for getting that relief,
rather than on the underlying market or product, because I believe that regardless of the market
or product, once you get past that and you get into the seeking of relief, then it really
doesn't matter what market or product you are looking at for the consumer—the company
to go into arbitration to get this settled.
I represent community banks, and they don't particularly use these clauses; however, they
would like to have the opportunity to use them when they're necessary. Their biggest
concern is that not having the ability to have an arbitration clause when it's necessary
is going to increase their cost, and their margins are very slim as they are. We have
seen a lot of consolidation in the industry, just because of that fact, because of over-regulation,
and we've had—getting caught in the backwash of overreaction of the bad acts of the larger
banks and the nonbanks in the mortgage industry, and we don't want to see that happen here.
We are very concerned about the consumer, and I believe that you'll find that with the
community banks, when they do use arbitration clauses, for the most part, their attorneys
have been very thoughtful in drafting those clauses to where they are readable, and they
draft those clauses where they are not arbitrary, they are not capricious, they are not taking
away anybody's constitutional rights.
For the most part, when you go into a community bank, you know that community banker, and
you are going to worship with that community banker. You're going to go to the grocery
store with that community banker, and they don't want to treat you any differently than
they would want to treat their mother, their brother, their sister, or their spouse. So,
having said that, if you take away the ability to arbitration when it's necessary, what's
going to happen is that you're going to take those thin profit margins and make them even
thinner, make it more difficult to have choice in communities.
And I can tell you right now, as we do have consolidation, we actually have some communities
in Texas that have no banks. No banks are going to loan them money on mortgages. I can
take you to a community in Texas where you cannot get a mortgage loan. A banker told
me, "I will not take a mortgage on your house"—and I know I am kind of getting a little bit off
topic—"I will not take a mortgage on your houses. I will make you a loan. I will take
a lien on your pickup truck, and you can buy a house with that."
So my concern is, as we continue to put another straw in the camel's back on the community
banks, one more straw being taking away the ability to arbitrate, I think there is a middle
ground. I think that you don't look at the bad actors and do away with arbitration clauses.
I think what you do is you look at the bad actors, and you do like the Supreme Court
did in Concepcion or take some reasonable act, as the CFPB might do, preserve the ability
to arbitrate, but preserve it fairly.
MEREDITH FUCHS: Ellen, this question is to you. Have you seen major changes in the way
that arbitration provisions have been used over the last 3 years?
ELLEN TAVERNA: Yeah. There's definitely been a change in the last 3 years, and this is
largely due to the major Supreme Court decisions that have been issued.
Director Cordray mentioned in his opening statement when he referred to prior to 2010,
the Supreme Court had a more restricted view of arbitration, but since then, they have
grossly expanded how they view and interpret arbitration clauses and the Federal Arbitration
Act. Basically, what they've done is they've overruled consumer case law and intended to
protect consumers.
We've seen this in the Rent-A-Center v. Jackson¬, which is a Supreme Court case that ruled that
challenges to forced arbitration clauses are decided not by the courts but by arbitrators.
So the example that I gave in my opening statement Ms. Duran, who lives in New York, now after
Rent-A-Center, what happened was that the Second Circuit decided that her only remedy
was to actually go to New York in front of the arbitrator and prove that her case is
unconscionable and unfair, and she actually has to travel to New York to do this to prove
that it's unfair to be in New York. And so these types of clauses, they didn't occur
prior to Rent-A-Center, and, again, as Concepcion has been mentioned earlier, basically eviscerating
the use of class action and a consumer's ability to band together on these small claims, these
complicated cases that wouldn't be brought otherwise unless they could be brought through
a class action, and what Concepcion has done is taken consumers' rights away from them.
And they are no longer able to hold wrongdoers accountable, and that we've seen in previous
studies that over 100 cases that would have been brought through class action were dismissed
because of Concepcion, and I'm sure there's even more than that today. In the CFPB's—in
your study, you have brought to light that only 300 cases have been brought individually
each year since 2010, and we believe that's a direct result of Concepcion.
Also, we've seen in Compu v. Greenwood, which is another Supreme Court case, basically saying
that if a federal statute doesn't explicitly state that the congressional intent in the
statute is to override the Federal Arbitration Act, the arbitration clause will be upheld.
So what I mentioned before when I was talking about a servicemember that was wrongfully
foreclosed upon and his rights were violated under the Servicemembers Civil Relief Act,
and here's a remedy in that Act to go to a court of law. And because of his arbitration
clause and because the Servicemembers Civil Relief Act doesn't explicitly say that you
can't—that it doesn't override the Federal Arbitration Act, then that servicemember wasn't
able to use the SCRA properly, and so that's a clear example of how consumer laws have
been eviscerated due to Supreme Court cases.
And then, finally, most recently in American Express v. Italian Colors, it basically said
that small businesses and consumers, even when they can show that they can't effectively
vindicate the rights, it doesn't matter. They still have to go through arbitration, and
they can't use the system of joining together in a class when it's—even if it's saying
that they can't use their rights to do so.
So as a consequence of these decisions in the past—really just the past 3 years, thousands
of claims have gone unheard, and as the CFPB study shows, it's not just in a court of law.
It's in arbitration anywhere. They are just not being brought.
MEREDITH FUCHS: Jess, I am going to direct my question to you. Today's release of preliminary
study results focused on arbitration filings from 2010 onwards. There have been many developments
in the law, as we've just heard Ellen describe some of them. Could you comment on trends
or evolution that you're seeing in the use of arbitration clauses?
JESS SHARP: Sure. Thanks for the question, Meredith.
I guess there are a number of developments. I guess maybe I'll focus on just a couple—well,
let me—I'll give you more than just a couple.
I think, increasingly, you're seeing situations where arbitration clauses have more consumer-friendly
characteristics. There obviously have been concerns about venues. More and more, consumers
are able to go to arbitration with written submissions or telephonically, and to cost,
more and more companies are shouldering most, if not all—in fact, usually all the cost
of going to arbitration.
Just a couple more that are probably even a little more new, I'd say those weren't out
there, but they're sort of increasing in their reach. But I'd also say, too, that they're
a little bit more new. Increasingly, you see things like minimum recoveries and even bonus
payments, and a bonus payment, think of it this way. Even a company that has an arbitration
clause has an incentive not to go to arbitration or not to take it all the way to arbitration.
As I said in my remarks, companies want to resolve these disputes as quickly and as efficiently
as they can, and they even create an incentive for themselves to do it. If you go to arbitration
and the award you are given by the arbitration as a consumer or as the curriculum is in excess
of the law sort of best settlement offer that was made by the company, then the consumer
in a lot of cases where this is a feature of that arbitration clause gets a bonus. It's
a way even for companies to incentivize themselves to be sure that they are making fair offers
up front.
So those are a couple of things that are new, and I also think that increasingly, we're
seeing more arbitration. I know that one of the findings of the study is, to paraphrase,
relatively few arbitrations, but I think as we go down the road here and continue to look
back, I think we will see more arbitration. And I think even arbitrations that begin to
look like classes, in a way, there are ways to pool resources and the cost of arbitrating
in a way that allows sort of multi-member participants in arbitration. So I think we
will see more and more of that as well.
MEREDITH FUCHS: Great. Thank you.
JESS SHARP: Sure.
MEREDITH FUCHS: Christine, are there markets where you see the challenges posed by arbitration
clauses being more or less significant to consumers, and if so, can you talk a little
bit about why that might be the case?
CHRISTINE HINES: Sure. I wanted to mention that the CFBP authority to eliminate forced
arbitration is not unprecedented. These clauses have been banned before in other contexts
because of their unfairness, such as with the Military Lending Act, which protects some
servicemembers from certain lending products, and with auto dealers being protected. Congress
protected auto dealers from the big, bad auto manufacturers, banned forced arbitration.
Auto dealers asked Congress to do that, and it did. So those are two businesses, and what
Congress did was level the playing field between the franchise small business auto dealers
and the large multinational manufacturers, to level the playing field to allow auto dealers
to go to court against bigger manufacturers.
So what we have here now is the same thing. We have consumers who need to have—who need
a level playing field as well. So in terms of the markets, what we have are CFPB-regulated
products and services. Most of them involve a standard-form contract obtained, you know,
debt relief, auto financing, banking, payday loans, credit cards, student loans, and any
other financial services. They all involve a standard form contract, and most of these
products also leave consumers vulnerable to things such as interest rate—large usurious
interest rate charges, legal fees, unfair and deceptive cats and practices. So consumers
are vulnerable to this kind of conduct, so all across the market, all across all of those
markets that I listed and more.
So what we have here now is we need a rule to ban arbitration across the entire market,
because we right now—millions of us, consumers, are—we just are being denied legal remedies
at the most critical time.
WILL WADE-GERY: This one is to all the industry panelists. Scott, maybe we'll start with you.
It seems—and this is something that we talked about in the study some—that at least in
some markets, not every industry player uses an arbitration clause. What do you see as
the cost and benefits to industry from the use of such clauses? Is that different for
different players?
SCOTT SHEA: It may be. I can say the experience in AFSA is most of our members do have arbitration
clauses in their contracts, but there's reasons for that. There are some statements that have
been made today about the complexity of an arbitration clause. Imagine what it would
look like if we were required to provide the guidance and instruction on how to file a
lawsuit in our contract. I'd venture to guess that would be a bit more complex than the
arbitration language that is in there.
There is arbitration in there. The reason why, one of the reasons is—is because it
enables the bank or the finance company to maintain as best as possible its value and
purpose in creating and maintaining customer loyalty. An arbitration process generally
allows for continuing dialogue between the finance company and its customer, and I can
tell you that AFSA is dedicated to maintain customer loyalty. Banks and finance industry
entities and companies want to maintain loyalty with their customers. They're not interested
in making enemies of their customers. They want to keep them. Arbitration is a good way
to do that, because it enables the dialogue to continue, and in our experience, quite
often in the arbitration process, because you are generally maintaining a dialogue with
that customer, the dispute gets resolved prior to the actual hearing. And the customer is
entirely satisfied, and the finance institution is entirely satisfied, where in our perception,
it would be interesting if the CFPB can engage part of its study to determine to what extent
or level of litigation that is filed against the finance sector is customer-driven versus
attorney-driven. We do believe that there is a healthy amount of litigation that is
filed by attorneys and driven by attorneys and not based on or concerning the individual
consumer's rights, and that's one of the reasons why there is a concern or a prohibition on
the filing of a class action that's part of the arbitration clause. I think that there
might be some sort of subtext that people have that class actions are a good thing.
Maybe sometimes they are, but a lot of the times, they are not. And I'd venture to guess
that class actions are probably the most abused litigation process in this country.
More often than not, the class actions that I have been privy to have ended up dismissed,
but only after the bank or finance institution had to incur a substantial amount of time
and money to do so. Because the arbitration clause has many values as far as maintaining
the dialogue, enabling the customer to get what they want as far as the immediate relief,
and it enables the finance institution to continue to maintain that customer and get
that customer's loyalty, there's definite value in it.
WILL WADE-GERY: Jess?
JESS SHARP: Sure. I can probably keep this short. I think, first of all, arbitration
clauses and arbitration sort of systems aren't free. Basically, they impose a cost on a company.
A company takes on a pretty substantial cost, particularly the better arbitration clauses.
The more consumer friendly, the more it costs the company to have that system, and so not
every company may be able to shoulder those costs. I think that may be one thing.
Now, of course, companies get something for this, right? There's no—what they get is
a more predictable and more efficient way of engaging with their customers and resolving
disputes that doesn't require sort of the endless—for endlessly bogged down in the
court system through one venue or another. It doesn't sound like a lot of people are
using small claims court, so are going straight up the middle and just sort of litigating
on your own. It has its own challenges, and I think, again, I've mentioned some of the
challenges of class actions, not just for consumers, but, obviously, as Scott said,
the burden on companies is enormous.
So the tradeoff I think for most companies is we want to do right by our customers. We
think we will set up a consumer-friendly arbitration process to do so, even though it costs us
a bunch of money to do it, because we know we're avoiding a substantial transaction cost
through litigation by doing so. So I think that's sort of the calculation I assume people
are making, and I can assume—I can probably make up reasons why it would make sense in
one industry or one size versus another, but I think that's probably the overall calculation.
WILL WADE-GERY: Thanks. Shannon?
SHANNON PHILLIPS: Arbitration in my mind provides consumer with an effective means for dispute
resolution. It's cheaper than litigation. To say that arbitration is more complicated
or harder to understand than litigation just means you've never been in a litigation.
It's also quicker. I've been following a case that's very important to us that was filed
in 2003. It is now at the Texas Supreme Court, and we still don't have a final decision.
That's 10 years. I can tell you that arbitration is much quicker than that, and when you move
more quickly, you also save money. There's no doubt about it.
The largest institutions in the United States certainly understand the justice system, and
they know how to employ the justice system. They don't have a problem employing the justice
system, and they don't have a problem outmanning consumers with lawyers in the justice system.
I think arbitration just sort of levels that bar a little bit, so that you're not going
in there against a large New York law firm.
And I will say that our community banks, if they do have arbitration clauses, they will
never have the venue in New York City. I promise that.
[Laughter.]
SHANNON PHILLIPS: Just to go on a little bit, as a personal note, I received a check from
a class action a few days ago, and I would like today to announce my retirement. I have
it taped to my door. I think the tape that I used cost me more than the check. It was
for 39 cents. I think everybody in this room knows who made the money off that, and it
certainly was not the consumer, apparently, which I was one that did not opt out. The
bank didn't make money, because it's going to cost them a lot more than 39 cents to process
that check, and I'm tempted to just go ahead and send it through, just so they get to have
that expense.
The lawyers, we know they're the ones that made the money in this case, and the issue
that I have here is that we're talking about financial services, and there is no industry
that's more regulated than the financial institutions. The community banks are just as regulated
as Bank of America, Chase, Citigroup, any of the above.
We don't need class actions. We have regulators that can take care of these things. You've
got a sign missing on an ATM machine—of course, they're not required now, but if you
had one, you go to the regulator. They'll take care of it. You've got an ADA complaint
against an ATM machine, because maybe it doesn't have the Braille, it doesn't have the spoken
language, the regulator can take care of that. An arbitration clause can also be useful.
Also, when you're talking about community banks, you're talking about products that
are probably specifically tailored to your needs. You sit down and you talk to somebody
you know. You probably went to grade school with them, and you knew their family, and
they are tailoring a product. It's not even a product that's going to be susceptible to
a class action, anyway, because the person that comes in after you is not going to get
that same product.
MEREDITH FUCHS: Thank you. I'd like to turn to the question of remedy and redress. Richard,
could you speak to whether the presence of arbitration clauses in consumer contracts
has impacted the consumer's ability to seek redress?
RICAHRD FRANKEL: Thank you, Meredith.
I think it has in a number of ways. There have been some suggestions that consumers,
when they get to arbitration, may or may not do as well as they would in court, but I think
one of the bigger problems with arbitration clauses is that it prevents—is that you
have to look at the consumers who signed arbitration clauses and can't access the arbitration system
at all and have no avenue for seeking relief, and I think that the example I—there's a
lot of ways in which this happens, but the example I want to focus on, I think, because
it seems to be based on the study, the most prevalent term in arbitration contracts, is
the ban on seeking any form of collective relief. And I think the reason why this is
troubling is because a lot of corporate wrongdoing, particularly I think in financial services,
involves cheating individuals about—out of relatively small amounts of money, you
know, significant I think for the individual, but small on the grand scale, but doing that
across everybody, across thousands or sometimes even millions of people, so that a company
can reap millions of dollars in ill-gotten profits. But the only remedy for those kinds
of claims is going to be a collective action, because as the study here shows, individuals
are not going to bring arbitrations for less than $1,000. They are not going to go to small
claims court for less than $1,000.
And there have been some suggestions about the value of class actions in providing relief.
People don't see claims and other things, but I think that's also directly refuted by
the information in this report, which identifies several class actions involving—against
payday lenders in which they settled for a significant amount of money, and the settlement
payouts were given to every single class member, without requiring them to submit a claim.
So I think that undermines I think that assertion right there.
There's also been a suggestion about the model arbitration clause that Shannon mentioned
from AT&T v. Concepcion, and that's mentioned sort of bonus payments or things like that,
but the development of that arbitration clause actually is very interesting. It was the advice
of the attorney to include all those bells and whistles in that arbitration clause as
a way of protecting the class action ban, the idea being it doesn't matter how much
other stuff you promise in the arbitration clause, because if you have the class action
ban, no one is ever going to be able to bring the claim. So do whatever you can to insulate
the arbitration clause from challenge, promise whatever you want, because if that class action
ban exists, no claim is going to get brought. So I think that exactly actually is very telling
in that regard.
I think class actions are very valuable or other forms of collection actions. It's not
just class actions that are banned. They are very important ways for getting consumers
relief. They are very important ways for changing business practices, even in cases where consumers
get small relief, and that benefit spreads out to the entire community. And I think that
that universal ban on class actions is there for a reason, and it's not a good reason when
it comes to consumer protection.
MEREDITH FUCHS: Thanks. Scott, you've already identified some of these factors, but if you
could speak a little further about the factors that play into a decision by a company to
use an arbitration clause in consumer contracts, and are those factors different across contracts?
SCOTT SHEA: I don't think so. The value, as I said before, about arbitration clauses,
there's many. As I talked about the right to build customer loyalty, I talked about
the economics of it, and it's something that I should also comment on.
Recently—and the CFPB, I'm sure is aware, and there may be some people here who are
aware—there have been challenges judicially to the use of arbitration clauses, and it's
under review right now from some appellate courts, but one of the things that is looked
at in whether or not the arbitration clause is fair is to what extent does it provide
fairness to the consumer.
I do know that in AFSA, there are a lot of efforts being taken to make the arbitration
clause more fair to consumers, including terms that require the bank or finance entity to
provide reimbursement to the consumer for their arbitration cost. Sometimes it's partial;
sometimes it could be the entire amount.
Additionally, there are bars in the arbitration clauses to the bank or finance company's ability
to appeal the decision, not so for the consumer. These are things that the industry is doing
to make the arbitration cause more user friendly and fairer to consumers who may feel that
it doesn't really help them. In a way, the arbitration clause is included in the contract
to allow the customer to have a place to go if they have a dispute, as opposed to wondering
what to do and going to a law firm perhaps or trying to figure out what their rights
are.
Regarding the ability or any data that might indicate that arbitration clauses are not
used for small amounts of money, well, that may change if the industry continues along,
as I've suggested, with providing reimbursements. It seems to be a going trend to reimburse
the consumer for their cost of expense in bringing it. That would encourage consumers
to bring arbitration for smaller amounts of money.
And as we've already spoken before, generally the arbitration is conducted in a place that
is convenient to the consumer, and unlike the judicial system, the consumer has a say
in the choice of arbitrator. The selection of the arbitrator is a process in the entire
function in which the consumer has the right to have their voice heard, not necessarily
so in the judicial system, where most of the time you have to basically be heard by the
judge that is assigned to your case.
So there are some definite advantages to arbitration, and while I can't speak for every company
as far as their decision to use arbitration clauses, the majority of the members of AFSA
do use them and have considered it very consumer friendly and very helpful in the industry.
WILL WADE-GERY: I think I have the wrap-up question that goes to everybody which is,
What do you think are the most significant issues relating to arbitration clauses and
arbitration the Bureau should prioritize in its study moving forward? Jess, why don't
I start with you. I know you've got some views on this one.
JESS SHARP: Sure. And you probably know where I'm going to go with this, because I've alluded
to it in a couple of the responses to my questions and my opening remarks. Let me also just say
that I am heartened by what I heard you say, Director Cordray, at the top, and some of
what I saw. I haven't had a chance to read all 170 pages of the preliminary findings,
but I did find the section again that confirms, as the Director said, that you will be looking
into sort of the contextual question. What happens if arbitration goes away? Where are
consumers forced to go to find, to get redress? And as best we can tell with the data available,
how good of a job do those—does the court system, do class actions do in obtaining relief
for consumers? And again, we're talking about small individualized claims here for the most
part, and again, I think based on what we've found in our own research that it's going
to be very, very difficult to say that consumers are better off facing the courts rather than
going through arbitration, particularly in situations where they're being reimbursed
for the entire cost of the process, where they have the choice of the arbitrator.
Again, for the most part, the arbitration process is fast. It's cheap, if not totally
free, and you're going to get a result quickly and chance are one that's in your favor. Does
it make sense to throw that away in favor of and sort of hope that the class action's,
you know, process is going to change and yield better results for consumers?
So I really do think—you know, I think what you've done to date makes sense to sort of
scope out the use of consumer—arbitration contracts in the consumer context, and again,
I think there's probably some more context that could be given about why so few have
been brought to arbitration. We're happy to provide more comments there, but I think this
next slug of the study, the next portion of the study is very, very important in putting
the first part in context, because again at the end of the day, the goal should be the
best result for the consumer, and I think we need to sort of tackle this, eyes wide
open, understanding what the relative benefits are of each dispute resolution process. Thanks.
WILL WADE-GERY: Shannon?
SHANNON PHILLIPS: I believe that one of the problems might be misunderstanding of—you're
talking about folks with disputes of under $1,000 using arbitration. I think maybe there's
a lack of understanding or there's not enough knowledge out there about what arbitration
is. Possibly, there's also some work that could be done in the arbitration process itself
to make it better for those smaller claims, because I think that's exactly the kind of
claims that this works for.
I know if you go to an attorney—when I was in private practice, if you came to me with
a $1,000 or less claim, I probably couldn't take it. It's not that I didn't want to take
it. I probably couldn't take it because, honestly, you have to make—a lawyer has to make money.
They are not in business to, at the end of the year, look at how much they've lost. Their
spouses will probably be real happy with a business plan like that.
In a lot of cases, again, it's not a choice between going to court or going into arbitration,
unless you want to go to small claims court and take on your own case, which, of course,
that is available also, and maybe there's some education there that needs to be done
there, too, about the use of small claims court.
I think as far as the clauses themselves, I think the biggest issue is grammar. I think
that they could be written better. I know we as lawyers tend to write things in hieroglyphics.
They are difficult to read. They are sometimes difficult for us to read. They are often much
longer than they need to be. You could go through and scratch out about half of it and
still have the same result, so I think that that's an issue too. And then, of course,
visibility, they need to be very visible in the contracts where folks can see.
I'm not sitting on this side totally opposite of your side. I am wanting to be able to work
with the consumer groups to get these arbitration clauses to be fair and useful to them. I do
think they are in a lot of cases. I hope the CFPB at least at some point maybe finds an
arbitration case that they can go through and sit alongside of and follow it all the
way through to see exactly how it works.
WILL WADE-GERY: Let me turn it over this way for a bit. Christine?
CHRISTINE HINES: Sure. Well, just in a quick response, so the CFPB rule—well, they anticipate,
and the hope for CFPB rule on forced arbitration would not eliminate arbitration. Arbitration
will still exist. It will be voluntary. It will be voluntary for after the dispute arises.
It will still exist. The AAA will still exist, and businesses can—after the dispute arise,
businesses and consumers can still agree if it's in both their interests to go to arbitration.
So in terms of some of the issues, I think, we have a mountain of evidence. We believe
that there's a mountain of evidence already, that arbitration—forced arbitration—forced
arbitration is unfair, but we think that the CFPB should consider or continue the suppression
of claims data, the collection of data that is showing that there is a suppression of
claims. We think the CFPB concluded that 90 percent of the companies with arbitration
clauses also have class action bans. That's not a coincidence. So I think that that is
a really—wherever the CFPB decides to go next in that area will be helpful.
I think one issue we did not discuss today is the impact on injunctive relief. Injunctive
relief is when a consumer files a case in court and asks the judge to stop a bad practice
of an industry, of a company, whether it's deceptive practices or deceptive marketing
or whatever the—illegal fees, whatever the case may be. I think a really powerful tool
that the consumer has is to go to court and act on behalf of the public, act on behalf
of the public to say stop this, stop this practice, and that doesn't just help that
one consumer. It helps everyone, all of the customers of that company. So I think that
that's possibly an area for the CFPB to look at.
There is a—I also think that state consumer protection laws have been impacted by forced
arbitration and class action bans. Maybe the CFPB would like to look at that impact a little
bit more. All of the states have laws, the unfair deceptive acts and practices law. They
are very useful, but what I found, that state can't enforce, can't enforce these laws on
their own. So what the state legislators did was include a provision in those state UDAP
laws giving consumers a private right of action . So they are saying, "We have this law that
would protect you from unfair deceptive acts and practices. The state cannot handle it
on our own. We need consumers to act on their own behalf"—act on their own, which is a
wonderful free market principle, acting on their own to go to court. And so these—what
happens is it's possible that the class action bans are having an impact on their ability
to do that, so those are—
WILL WADE-GERY: Thank you, Christine. Richard?
RICHARD FRANKEL: I know it's time for public comments, so I'll try and keep it quick. But
I think one interesting thing might be to look at, for financial services companies,
what their contracts look like with other entities as opposed to contracts with consumers,
do they use arbitration clauses in those contracts, what do those arbitration clauses look like,
and is their behavior different when they have a chance to negotiate versus when they
can dictate terms to consumers.
There's been a suggestion that arbitration clauses save money for companies. So it would
be interesting to study whether these savings, if they are there, if they are passed on to
consumers. Where places where class action bans are enforced, are there lower interest
rates for consumers, or they're higher where class action bans at not enforced. Has there
been a change in rates since the Supreme Court said that class action bans can be enforced?
I think that would be a worthy subject.
Then the last thing, quickly, I think looking at the history of class action arbitrations
as opposed to just class actions in court, the AAA allowed for class action arbitrations,
and we hear a lot of discussion about class actions in courts versus arbitration, but
the arbitration clauses don't just prohibit class actions in court. They also prohibit
class arbitration. So what was the process like for that? Was it a worthwhile process?
Were people satisfied in whether that could be an alternative?
WILL WADE-GERY: Thanks. Scott and then maybe Ellen, last word.
RICHARD CORDRAY: She hasn't had a chance to talk to this question.
ELLEN TAVERNA: I'm sorry. Do you want me to go ahead or—
WILL WADE-GERY: Sure.
[Laughter.]
ELLEN TAVERNA: Well, I agree with both of my colleagues, but I have to say that I think
that there's enough evidence out there and especially around the suppression of consumer
claims. I think that what you've provided with your study and other previous research
in studies has shown that arbitration clauses are suppressing consumer claims, and that
the Bureau has the authority to issue rulemaking now. I think that it's in—it's urgent that
they act now.
I think that what you've seen in the past few years is that consumers aren't going to
court or arbitration, and that they are losing their rights. I think, which was mentioned
earlier, the idea of regulating around the arbitration process is just not going to work.
We've seen this in other industries, that abuse companies. Particularly, ones that are
writing the contracts and writing the provisions, they are always going to find a way around
the system. They are always going to—they're going to continue to rig the game, and they'll—we
can't—we can't regulate in that way, and that we think that the only clear solution
is to ban forced arbitration, as Christine mentioned, clauses now.
WILL WADE-GERY: Thanks very much. Scott, last word on what our priorities should be for
the rest of the study?
SCOTT SHEA: I think I'm prepared now. Thank you.
[Laughter.]
SCOTT SHEA: I think one of the priorities should be, as I mentioned in my opening statement—is
to—I think the CFPB should check and interview customers who went through the arbitration
process, because I think a lot has been said. I think there's some perceptions that arbitration
is too complex, that it's a bad thing, that the rights aren't heard. I think if you have
the data, that you can get it through the AAA, I think part of your study should be
checking with those people to see how it worked for them. Was it valuable to them?
And then as far as whether or not people actually use the arbitration clause, I think that could
be an education issue, and that's something that I already stated that AFSA is committed
to. Education is something that we acknowledge is necessary in the banking finance industry,
not only for the arbitration clause, but to make certain people understand the finance
obligation that they are undertaking. And it's a procedure and it's an initiative that
AFSA is involved in, anyway. So if a finding comes out of this that, you know, the CFPB
recommends the industry undertake greater education levels to inform consumers of the
use of arbitration and what it does and the benefits of it, that's something we would
heartedly agree with.
WILL WADE-GERY: Thank you.
MEREDITH FUCHS: Thank you. Well, before we open up this discussion to the audience, I
just want to say thank you to all of you. We have been extremely fortunate to have had
your participation and to have heard your comments and your examples and your ideas.
So thank you, and I'd ask the audience to join me in thanking our participants.
[Applause.]
MEREDITH FUCHS: So our panelists are going to return to the audience, and Zixta will
let us know how the audience portion of this is going to work.
ZIXTA Q. MARTINEZ: Thank you, Meredith.
Now it's time to hear from audience participants here today, and a number of you have signed
up to share comments and observations about today's discussion, and more importantly,
to share your comments, your feedback about what you're seeing in your communities, what's
happening in consumer finance markets where you live, where you work.
Each person who signed up to provide testimony will have 2 minutes to do so, and what we
hear from you is invaluable to us. We take this back with us. It teaches us further about
how we should think about things and how we should move forward. So with that said, I
would encourage you to stick to the 2-minute limit, so that we can hear from every single
person who signed up.
And our first audience participant is Reverend Dr. Frederick Haynes. Either Kelvin or Bruce
will bring you a microphone. There you go.
REVEREND DR. FREDERICK HAYNES: Okay. Thank you so much. Let me express my appreciation
to you for bringing this information and your concern to Dallas.
Especially, given the fact that this is the Consumer Financial Protection Bureau, my concern
and from my community has everything to do with protection for a community that has been
targeted and is under attack by economic predators, i.e., payday loan, car title loan companies,
et cetera, and so our communities are inundated, they are proliferated, they are targeted by
these institutions because, as we discussed earlier, unfortunately, we are in a banking
desert. So I'm hoping that the CFPB will come back to Dallas specifically to deal with this,
due to the fact that there are more, what, payday and car title loan stores in Texas
than you have Burger King, McDonald's. You've heard that story, and so I'm asking you to
please come back to discuss with us a couple of things: number one, regulations, what we
can do to better regulate an industry that is rooted in greed and attacking people who
are desperate and find themselves in situations where they are basically under-banked; and
then, number two, resources for these communities that again suffer from a banking being in
a banking desert. And so I hope that you will come back, and thank you very much for coming.
ZIXTA Q. MARTINEZ: Thank you, Dr. Reverend Haynes, and thank you for the invitation.
Jennifer Allman.
JENNIFER ALLMAN: Hi. I'm Jennifer Allman, and I work for the Texas Catholic Conference
of Bishops. I am speaking today on behalf of the Catholic Bishops of Texas. They have
significant concerns about the practices of the payday and auto title lending industry
in our communities. These concerns come from both our moral concern over the issue of usury,
but more dramatically, over the practical experience we see in the communities we serve
throughout the State of Texas.
We did a survey in 2010 and in 2012. We found that more than a third of our clients receiving
charitable assistance are currently paying out auto title and payday loans. For example,
when we provide $300 of assistance to an average family for a month's worth of utility and
food needs, they are paying $450 that same month to the payday lender, and so it's raised
a significant concern for us. As a result of that concern, we have begun a series of
listening sessions around the state, canvassing the state with nonprofit partners, talking
directly with clients in need as well as case managers about their experiences with payday
and auto title lending.
I know that today's topic is on arbitration, so I'm going to share just one or two short
examples of times in which this arbitration clause has created a significant problem for
our clients.
In one example, a gentleman had a car title loan on his truck. He went to the lender the
middle of that week and told him on Friday, he would be moving into a homeless shelter,
so that he could afford to pay off the loan when he got his paycheck on Monday, and that
he would be back to the lender on Monday with payment. The lender showed up to repossess
his truck on Friday when it was full of all of his personal belongings that were going
to a storage unit. He got an attorney. Because he made the payment on Monday, he got an attorney
to represent him, and he was able to get his truck back, but the contract had explicitly
in it that any possessions found in the vehicle would be the property of the lender after
repossession, and so the lender kept all of his possessions. There was an arbitration
clause in the contract, so he couldn't really pursue it any further.
In another example, we had a lender in the same homeless shelter. The case workers were
sharing the stories with us. They had the lender actually call the homeless shelter
and say to them, "Can you come pick up this woman? We've just repossessed her car, and
she was living in it."
So the examples that we've seen of unscrupulous business practices throughout the community
are having a direct impact on people's lives and on the charity that we attempt to provide
them. Thank you.
ZIXTA Q. MARTINEZ: Thank you, Ms. Allman. Janet Ahmad.
JANET AHMAD: Thank you very much for this opportunity.
One of the things that has been missing in this discussion is homebuilding, and it's
extremely important, because the biggest problem we have is the mortgage as well. And let me
just give a little bit of background. I'm with HomeOwners for Better Building. I'm sorry
I didn't say that. We're a national organization, and we're based in San Antonio.
Back in 1996, there was a joint venture—'94, there was a joint venture formed by the American
Arbitration Association, National Association of Home Builders. It published their changes,
and then the changes to the American arbitration construction industry arbitration rules, in
1996, they adopted them. It states, In June 1994, AAA created the construction ADR Task
Force, comprised of 55 representatives of the construction industry and their advocates,
with the goals of—and one of them was to write the rules. And it ended in the last
portion of that two-sentence paragraph, it said, With a—the goal of improving AAA services
and helping the AA be more responsible—more responsive to the needs of the construction
industry. That's outrageous.
Then the National Association of Home Builders promulgated a contract with binding arbitration
in it stating that all would be arbitrated through the American Arbitration Association
under the arbitration rules. Since then, homebuilding has gone down, and an example of that is the
rush to greed, the mortgage fraud that went on. Conspicuously absent, although they created
a large number of the mortgage fraud loans was the homebuilding industry. They say the
same thing that was said today regarding they have to protect their reputation, so they
will take care of homeowners. Nothing could be further from the truth when homeowners
are forced into binding arbitration that is behind closed doors, not public. If they want
to take care of them, they wouldn't care, and they wouldn't have to make this all big
secret. It's not a public record.
ZIXTA Q. MARTINEZ: Ms. Ahmad, thank you so much for your comments. We'd be happy to take
the entirety of your statement for the transcript.
JANET AHMAD: Well, my suggestion is let's put the big equation into this, and I certainly
do appreciate this opportunity. Thank you very much.
ZIXTA Q. MARTINEZ: Thank you for your comments. Professor Mary Spector.
MARY SPECTOR: Thank you. I'm from the SMU Dedman School of Law, where I run a clinic
for low-income clients.
Is the mic on?
ZIXTA Q. MARTINEZ: Yes.
MARY SPECTOR: And also teach consumer law.
I wanted to follow up on two things that were said. One was from Professor Frankel, who
talked about the way that consumer protection laws at the state and at the federal level,
many have provisions that pre-dispute arbitration clauses eliminate. For example, the class
action is one of them, because of the recognition that small disputes cannot be economically
resolved one at a time, and that the enforcement mechanism of the class action is critical
to the effectiveness of the consumer protection provision. So that was one point.
And also, the second point, which is very similar, is that other remedies, remedies
such as injunctive relief, punitive damages, are all parts of thoughtful comprehensive
consumer protection regulatory schemes, and in an arbitration clause that eliminates some
of those provisions, you are eliminating the effectiveness of the consumer protection scheme
itself.
I'd also like to join the first speaker in inviting you back to Dallas. My areas are
debt collection and credit reporting, and we have a lot to talk about on those areas
as well. Thank you.
ZIXTA Q. MARTINEZ: Thank you for the invitation. Jeff Johnson.
PASTOR JEFF JOHNSON: My name is Jeff Johnson, and I am Senior Pastor of the First Baptist
Church of Commerce Texas. I'm also President of the Baptist General Convention of Texas
that represents over 5,000 churches here in the State of Texas.
My background is a bi-vocational minister with a bachelor of business administration
from Texas A&M, with an emphasis in money and banking, and I worked for several years
as a financial analyst. Prior to that, prior to being a compliance officer, I worked in
debt reduction strategy for consumers in a major financial firm.
Growing up, I was a Scout, and my grandmother had to teach me on one of my merit badges
about snakes. She said there were good snakes, poisonous snakes that were not good, and there
bad snakes, the poisonous snakes, but the worst kind of snakes for rural people were
the snakes that were good snakes that had gone bad—the king snake or the chicken snake
that starts robbing the hen house.
As a minister and a financial analyst, I applauded the Texas Credit Services Organization Act
of 1997 as something that would help consumers repair their credit. I applaud systems like
the systems we had in place and have for arbitration and legislation, but those are flawed. They
are becoming good snakes that are becoming bad snakes.
My grandmother said the only way to get rid of a good snake gone bad is to eliminate it.
Now, I'm not my grandmother. I think maybe eliminating loopholes and leveling the playing
field is important. As a preacher, I have often asked, Am I my brother's keeper? And
I think yes. Borrowers are challenged, but lenders need to be held accountable. Wise
federal oversight and regulation are sorely needed, and I encourage you to closely monitor
payment processing procedures, compliance safeguards that exist, and I might suggest
any federal safeguards to protect the integrity of our payment institutions and assistance,
financial institutions, and consumers. And I look forward to working with you in this
effort in the future, and I hope you come back to hear more about what we obviously
as a group are passionate about as far as payday and auto lending. Thank you.
ZIXTA Q. MARTINEZ: Thank you, Mr. Johnson. Rebecca Lightsey.
REBECCA LIGHTSEY: Thank you. I am Rebecca Lightsey. I am Executive Director of Texas
Appleseed, and I wanted, too, to bring to your attention the issues with payday and
auto title lending here in Texas. It's a $1.2 billion industry in terms of the fees that
are collected from consumers here in Texas.
Last year alone, there were 35,000 vehicles that were repossessed by the auto title lenders.
It is not uncommon at all for these loans to carry an APR of up to or exceeding 600
percent. We need to be looking at this issue for a variety of reasons. There has not been
significant action in the State legislature. There have been several cities that we applaud,
including the City of Dallas, for taking steps to address this, although the industry has
filed litigation against those cities. And equally importantly, what we see is the continual
movement of the industry to find new products that evade any regulation.
For instance, we are seeing an incredible increase in installment, payday, and auto
title loans. They have grown 82 percent. That market has grown 82 percent just in 2012 alone.
These abuses are ones that we need to address on a variety of levels, including looking
at the arbitration language, because these loans all carry the arbitration language.
What we have seen at Appleseed is a handful of consumers who have attempted to avail themselves
of these arbitration issues, but because of the secrecy that surrounds the arbitration,
they are not allowed to speak publicly about what's happening.
We have seen that the consumers who have gone through the arbitration, the arbitration process,
do not feel it has been at all a fair process for them. They believe that the arbitrators
are not listening carefully to what their situations are. They believe they have not
seen a fair outcome in the arbitration hearings.
So I join my colleagues in inviting you back to Dallas to look at this and other issues.
Thank you very much.
ZIXTA Q. MARTINEZ: Thank you, Ms. Lightsey. Thomas Aleman [ph].
ATTENDEE: Thank you. Good afternoon. Welcome to Texas. Thank you for being here today.
I represent International Bancshares Corporation, which is largest Hispanic-owned bank shares
corporation in the continental United States, holds four non-federal state bank charters
that are federally insured. We are here today to talk a little bit about arbitration clauses
specifically.
In October of 2011, IBC voluntarily changed its arbitration clauses to the Concepcion
model, and I have a copy of the contract here that I'd like to hand up and make a part of—
ZIXTA Q. MARTINEZ: We'd be happy to take it for the record.
ATTENDEE: —together with some supplemental comments.
IBC's concern today here is that we have an evolving process. We have not had a chance
to look at the data that was provided this morning. We got it. We have not had a chance
to address some of Director Cordray's comments that we'd like to talk about. So we would
like to be sure that this process is deliberate and takes into account all of the issues.
But one of the issues that we think is getting lost is this. CFPB's charter under Dodd-Frank
section 20—1028 does not take in every arbitration contract, and the real risk of this process,
without thinking carefully about the public interest, is is there some special public
interest that appends to these contracts that doesn't append to the rental furniture or
my cell phone bill or cable television or those things that may be outside of this charter.
We believe strongly that the class action process is abused. We've been involved in
four class actions out of our offices in Laredo, Texas, in the last 3 years. Two were brought
by a law firm in Pittsburg. One was brought by a law firm in Miami. What does this tell
us about the local nature of class actions? And that is a serious concern. This is about
the best and most economical way of resolving disputes for those who are aggrieved, rather
than on people who may not exist as a class.
ZIXTA Q. MARTINEZ: Thank you, Mr. Aleman. We'd be happy to take further comment as we
progress in this important work.
ATTENDEE: I have it to hand up.
ZIXTA Q. MARTINEZ: Thank you.
ATTENDEE: Thank you so much.
ZIXTA Q. MARTINEZ: Archis Parasharami.
ARCHIS PARASHARAMI: Pretty close, but—
[Laughter.]
ZIXTA Q. MARTINEZ: I tried.
ARCHIS PARASHARAMI: It's a very hard name to say. I'm Archis Parasharami. I am a lawyer.
ZIXTA Q. MARTINEZ: Beautiful name.
ARCHIS PARASHARAMI: Thank you. Thank you. Mom and dad would be proud.
I'm a lawyer at Mayer Brown, and I work on both arbitration agreements and defending
companies in class actions. And you know what, what I took from the study—and I've only
had a little bit of a chance to really look at it, but what I see is that it looks like
the terms of arbitration clauses are evolving in a positive direction, and it's becoming
harder to—and I think this is a good thing—that arbitration agreements are unfair to individuals
who pursue arbitration.
Increasingly, arbitration agreements use the AAS's rules. That's a nonprofit organization
that exists to facilitate dispute resolution, and so really, what both the subtext and in
some cases the text of the discussion has been, has been about the fairness of the waiver
of class actions. And so I was really heartened to hear that Director Cordray said that the
agency is going to dig more deeply into class actions. I think these preliminary results
really do just a little bit of work, take a look at six class actions, maybe sort of
a handful, and I think maybe a more comprehensive treatment of class actions is in order.
I think if the debate is over, whether consumers benefit more from the availability of inexpensive
arbitration or participation in class actions, that is imperative that the Bureau take sort
of a legitimate study of class actions, study the more comprehensive way.
Now, our firm, working in conjunction with the Chamber, recently issued a study of class
actions in 2009, and unfortunately, what we found was that class actions have not really
been benefiting consumers. The vast majority of class actions are dismissed, either by
the main plaintiff or by courts, those that settle, and none go to trial, at least none
of the ones we studied went to trial. So the notion that class actions promote the jury
trials is, at least in my view, questionable. But the ones that were settled on a class
basis, it turned out that in many cases, the rate of participation of class members was
under 10 percent, sometimes even under 1 percent. And so then if you have a class action where
90 percent of class members or 99 percent-plus don't benefit, you know, is it really helpful?
I know some of the professors spoke about the benefits of class actions, and maybe in
theory, they made sense. In practice, they do not, and—thank you.
ZIXTA Q. MARTINEZ: Thank you for your comments. Jessica Lesser.
JESSER LESSER: Hi. I am a private practice attorney here in Dallas. Is this on? Can you
hear? Okay, good.
I represent consumers. I have also been a regulator in the past for the Attorney General's
office, and I was in industry representing debt collectors and auto finance companies.
I've now chosen where I represent nothing but consumers, and every day, what we forget
on these arbitrations, we're talking about litigation over fraud that created the contract
that includes the arbitration clause. So do we allow a car dealer to have an arbitration
clause in a contract and then commit a deceptive trade practice, but not allow the consumer
the redress in private court systems?
The other problem I have really falls more on a true jurisprudential philosophical view.
What happens to our body of law? How do we know interpretations, court interpretations
of statutes, and how it evolves, as time evolves, and society evolves. Stare decisis seems to
go away and disappear, as well as who is grading the arbitrator's report card? We have an appellate
system that if a trial court messes up, well, we get to go do up there and it goes again.
A lot of times, the trial courts don't mess up because somebody is looking over their
shoulder, and as somebody who appears in front of a lot of trial courts, I get, "Well, I
just care about who is grading my report card." That process of checks and balance is vital
to continue the equalization of rights of consumers, but not get in the way of industry
continuing to practice.
I just—I mean, and that's kind of—whereas, how do you create that where everybody was?
Again, we are talking about voluntary. Go. If you want to go to arbitration, go.
Finally, just real quickly, we have a similar thing, I hope, that you guys looked to under
the FCRA to handle disputes. As a lawyer who has handled FCRA disputes for 16 years on
both sides, I can tell you, you know, those don't get fixed, and so you have a real-life
example of consumer arbitration or ability to fix it without calling up the lawyer to
go in there and fix it, because a lawyer can get in the way and make some money and all
that. But it hasn't worked, so now transferring it to more industries.
Thank you so much. Appreciate it.
ZIXTA Q. MARTINEZ: Thank you, Ms. Lesser, and I would encourage everyone to consider,
if you have a constituent or a client with a consumer finance issue, to file a complaint
with the Bureau, including complaints addressing credit reporting agency errors. The information
is here on the site.
Joanne Grosherhart [ph].
ATTENDEE: Grosshart [ph].
ZIXTA Q. MARTINEZ: Grosshart.
ATTENDEE: This is a rat. This is a rat. This is what all payday owners are. They're rats.
Okay, to my speech. Paydays *** the poor and uneducated and are destroying my end of
Richardson. Richardson City Council has made it clear to me that they don't give a "D"
underscore, underscore, underscore, and have no intention of putting a usury limit on paydays
of 8 percent or 800 percent plus interest or more.
Churches are hurt because their donations from their members go to paydays. If John
borrows—and this is a true case too. John borrows $200, needs to pay $30 a week interest.
He pays and pays and pays and pays and thinks his loan is lowered, but he still owes $200.
Next page. He can't make his rent because he's paid 125 interest. He defaults. The payday
keeps his car. He can't get to work and is fired. He asks the churches to pay his rent.
Next month, his family moves to a shelter.
This is interesting. At Lone Star Car Payday, who takes and possesses these $35,000—35,000
cars a year, this is a sign that says "Do you need a car?" And this is in the same lot
that the people are taking, okay? Does this make sense? He is making double.
Okay. This will continue to happen unless the USA regulates paydays APR interest. A
deal with a payday is a deal with the devil. The paydays and the devil own you. "Come into
my parlor," said the spider to the fly. That's what a payday is.
And as a sign of good negotiation is when both parties walk away satisfied, and I learned
this from the best negotiation teacher in the United States, of which I cannot remember
his name, but he wrote all the books, and that's what I learned after 3 hours. Thank
you.
ZIXTA Q. MARTINEZ: Thank you, Ms. Grosshart. We'd be happy to take your statement for the
record.
Alan Hunn?
ALAN HUNN: Hi. I'm Alan Hunn. I'm General Counsel at Nissan Motor Acceptance Corporation.
I want to welcome you to Texas. My colleague, Scott, was on the dais with you.
And I just wanted to speak from the company's perspective for a minute. I think you have
a lot of companies that want arbitration to be a fair process for customers. We truly
do want customers to be able to dispute with us on our dime any reasonable dispute they
have.
I think one thing you get in a forum like this, unfortunately, is the bad people don't
show up; that is, that the people who abuse things aren't here to defend what they do
to people. But you do get a lot of responsible corporate citizens who want to work with you
and with the consumer advocates to try to find solutions to problems.
One of the things I caution you on is that arbitration is young, right, and so one of
the things you'll run into when you look at quantitative analysis is you won't have as
much with arbitration, and you've got a long history with litigation. And unfortunately,
when you valuate arbitration, means sometimes people are choosing litigation because that's
what's been done a long time, and consumer advocates are suspicious of arbitration in
many instances. And from some of these anecdotes, you might understand why, obviously.
But I think the suggestion would be that there's a lot of responsible corporate citizens that
want to work with the CFBP to reach solutions. I think there is a way to have arbitration
that's done in a very fair manner. We want consumers to have fair opportunities for dispute
with us and really look forward to working with you to try to reach that end.
ZIXTA Q. MARTINEZ: Thank you, Mr. Hunn. Juanita Wallace.
JUANITA WALLACE: Hi. I'm Juanita Wallace, Dallas Branch NAAC President, and I come—I'm
very thankful for you coming here, but I come because I am really very, very concerned about
the pay loans and all of that other mess that goes along with it. We're sick and tired of
being sick and tired of it, and we need something done.
Now, with the arbitration, I wanted to ask you if within the actual clause, do you have
something embedded in that law that talks about PR; in other words, public relations.
If people are not aware of the law and they don't have an understanding and education
of the law, then they cannot access the law and nor will they be able to use it. So that's
the one thing that I'm very concerned about.
Thank you. I'd love for you to come back to Dallas and to monitor these lenders and their
lack of transparency and their lack of unjust treatment to the people that have no other
recourse but to use their services. Thank you.
ZIXTA Q. MARTINEZ: Thank you for your comments, and thank you again for the invitation.
Keilah "Hacques" or "Jacques."
KEILAH JACQUES: Hello. My name is Keilah Jacques, and I am the Public Policy Coordinator at
CitySquare, under the supervision of Reverend Gerald Britt.
CitySquare is a social service provider here in the heart of Dallas. Our work centers around
services that support individuals in poverty. We focus on four areas, hunger, health, housing,
and my department falls under hope. We are one of very few social service providers that
also have a social justice arm, and the work that we have done locally on predatory lending
and auto title loans has been in partnership with the Antipoverty Coalition of Greater
Dallas.
I want to share with you a story because we touch the lives of more than 70,000 people
annually, and there was a point in time where we had funding to provide financial counseling
and services for the individuals that we provide service to. We call them "neighbors" and not
"clients." And it's in servicing some of our clients, we find that about 40 percent of
them suffer from being stuck in the cycle of debt due to payday and auto title loans.
This particular story is about a lady who lives in one of our housing developments,
and she took out a payday loan of $300 to buy clothing and school supplies for three
of her children. After going through the cycle and not being able to pay the loan off, she
paid more than $900 over the cost of her rent for that month and through the counseling
services was able to receive some financial assistance, but we no longer have funding
for that program any more. We no longer have funding for the financial literacy.
The work that we've done with the Antipoverty Coalition, that includes the United Way. It
includes Catholic Charities. It includes a number of nonprofit service providers, the
faith community. It also includes business representatives, such as the AARP, and we
worked together to put in place a piece of legislation that was monumental across the
nation. We did that in partnership, representing the community, who doesn't have funds to represent
themselves at the state level or the local level. They don't have funds for lobbyists.
They don't have funds for lawyers.
What we found is that despite the legislation that is in place locally, there's not the
means for enforcement, and so the industry continues to get away with their practices
locally. It's already been mentioned, the presence that exists in this state, and through
the partnership, we continue to work on statewide legislation. This work cannot be done alone,
and so we encourage you to continue the good work that you're doing, and we thank you for
it, knowing that we'll continue to fight alongside our neighbors and those that we serve, so
that they can have a quality of life that is respectable. Thank you.
ZIXTA Q. MARTINEZ: Thank you. Thank you for your comments, and thank you for the work
that you do independently and in coalition. The work that we hear from you is tremendous
and valuable.
Julia Duncan.
JULIA DUNCAN: Thanks. Good afternoon. I'm Julia Duncan, and I'm with the American Association
for Justice.
The AAJ would like to applaud the CFPB for taking the first steps to restore accountability
by addressing forced arbitration. Forced arbitration puts all Americans' financial security at
risk. It allows corporations to evade accountability and in essence grants them a license to steal
and to violate state and federal laws. Forced arbitration has become the biggest barrier
for Americans seeking justice, especially those who want to hold a bank accountable
for stealing what may be considered a small amount to one person, but when multiplied
by every customer the bank has stolen from, turns out to be a significant amount of money.
When faced with being forced into individual, private, secret, arbitration, the consumer
often decides she does not have the time or money to try and hold the bank accountable,
and the bank gets off scot-free, even for massive violations of state and federal law.
After the Supreme Court decisions favoring forced arbitration over consumer's access
to justice, accountability has been severely limited and in many cases completely denied.
I also want to take a minute to reiterate what some of my colleagues said about voluntary
versus forced. I have never heard a consumer advocate, including those of us at the American
Association of Justice, oppose to voluntary arbitration. There are other means of resolving
disputes that can be supported and should be supported by all parties. What we are talking
about here is forced arbitration, and when one side, in this case, large corporations
and banks, have the power to force individual consumers into a forced arbitration system
under the rules that they write, we don't have to look very far to know who the forced
arbitration system benefits. If we create a system that is voluntary and post dispute
and it is in fact truly fair and cheaper, there's no reason that both banks and consumers
couldn't benefit from that.
In reality—
ZIXTA Q. MARTINEZ: Thank you, Ms. Duncan.
JULIA DUNCAN: —accountability must be restored, and we look forward to working with the CFPB.
ZIXTA Q. MARTINEZ: We'd be happy to take the entirely of your statement.
JULIE DUNCAN: Thank you.
ZIXTA Q. MARTINEZ: Manuel Robles.
MANUEL ROBLES: Thank you. Good afternoon, Director and members of the CFPB. My name
is Manuel Robles, and I previously worked in the payday and title loan industry, specifically
at Advance America in Dallas and the Cash Store in Grand Prairie—Grand Prairie, Texas.
At the time, it was a job, but the longer I was employed by these lenders, the more
I regretted performing some of the practices I was called on to do. Ultimately, my resistance
led to my being let go. There's much I can say, but given the limited amount of time,
I will briefly speak about my experiences and industry strategies to target clients
through location selection, the collection practices, and my experience with and witness
to industry practices that coerced employees and clients to sign petitions for the purpose
of legislative advocacy.
Generally, the strategy was to target low-income areas. Our busiest stores tended to be specifically
in those areas where there was a perceived need for small-dollar loans and a prevalence
of financial illiteracy. The goal was not to fulfill a need so much as to derive profit
from such needs.
The most glaring example of the industry's location and targeting strategies occurred
after the devastating of Hurricane Katrina. As the victims of the storm were flowing into
the greater Dallas area, many were moved into the southern part of Dallas and Grand Prairie
area, and it was a prime opportunity to capitalize on the desperation of the impoverished demographic.
Through conversations with my management at the time, it was made clear to me that our
company was opening new stores in order to do just that.
As for collection practices, an uncomfortable role that I was required to take on was that
of a collector. For the lack of a better word, I was to make home visits to inquire and demand
payment on delinquent accounts. In a word, I was meant to intimidate clients. I would
make phone calls as well for these. I was coached to use whatever means possible, to
not take no for an answer.
The expectation was that I would continually pester and demand until the store got its
money. When there was a legislative threat of any of these lucrative practices that the
industry used, the company would send out petitions. Customers in a flurry of signing
forms would oftentimes sign the petition as well. We acted like we expected them to, and
we wouldn't necessarily tell them the full ramifications of the petition.
ZIXTA Q. MARTINEZ: Thank you, Mr. Robles. We'd be happy to take the entire statement.
MANUEL ROBLES: Okay. Thank you.
ZIXTA Q. MARTINEZ: Ware Wendell.
WARE WENDELL: Good afternoon. My name is Ware Wendell. I am the Director of Legislative
Affairs for the consumer group Texas Watch. We're a nonprofit consumer group based in
Austin with over 20,000 grassroots activists across the state. I am also an attorney in
private practice focusing on consumer cases, and I am here to testify in both capacities.
Forced arbitration clauses are increasingly inescapable, and they are unjust. Consumers,
by merely participating in the marketplace, are being forced to have their consumer and
constitutional rights stripped away from them. It's a fiction that consumers are able to
freely negotiate these clauses, and I ask the CFPB—and I'm so glad that it's in existence
and doing this important work—to please ban forced arbitration classes. We've heard
why arbitration is a flawed process. It precludes class actions, which is the only relief available
to consumers who have been subjected to widespread harm.
It's conducted in secret. Discovery is limited, which affects public safety, and as a consumer
attorney, I'm precluded from telling you my experiences in arbitration. I hold in my hand
the AAA Consumer Due Process Protocol. Principle 12 tells me that those were confidential proceedings.
Suffice it to say, I will never take another case through arbitration on a contingency.
ZIXTA Q. MARTINEZ: Thank you, Mr. Wendell. We'd be happy to take your materials for the
record.
Neena Newberry.
NEENA NEWBERRY: First of all, I just want to say thank you for the opportunity today
and for the work that you all are doing. I am Neena Newberry. I am the President of Newberry
Executive Solutions, and I'm also the Chair of the United Way Advocacy Committee, so I'm
here in that capacity today.
And United Way really focuses on three areas: income, education, and health. And in May,
we announced $50 million of investments in the community, and $5 million of that is really
targeted towards lower income individuals to really help them build stronger financial
futures.
But one of the things that we consistently hear is that—from our service providers
is that payday and auto title lenders are really posing a huge barrier for their clients
and undermining their work in investments that we're making in the community. The average
consumer doesn't really understand what they are signing and what the implications are
if they don't meet the terms of the contract, and so while we don't provide direct services,
United Way does frequently get calls from individuals in the community.
I've got an example of an elderly lady who lives in Balch Springs and had taken out a
loan and was actually a few dollars short of being able to meet the payment, actually
was trying to work with the lender to make the payment. They ended up taking her car
in the middle of the night, and actually, on average, 92 vehicles are repossessed in
the Dallas, Irving, and Plano region each week. And borrowers in our region generally
pay $24 for each $100 that they borrow.
And so, in response, United Way has really focused on three specific things. Number one,
we've been meeting with state legislators to try to effect change. So there's a lot
more discussion happening, but at the end of the day, nothing has really been passed
that's making a difference. We need some action taken at the state—or federal level, because
the second thing we have done is to really focus on city ordinances, and Dallas has done
a great job, and some of the other cities here have as well, but it's not enough.
And then the third piece is we have been doing Secret Shopper visits, and I just want to
share a couple of things from that, because the findings are pretty shocking. The APR
ranges from 26 percent to 927 percent. Our Secret Shoppers are being encouraged to take
out even bigger loans and in fact not meet the obligations of the initial loan.
ZIXTA Q. MARTINEZ: Thank you, Ms. Newberry. I'd be happy to take the entirety of the findings
for the record.
NEENA NEWBERRY: Thank you. Well, we appreciate the work that you're doing.
ZIXTA Q. MARTINEZ: Thank you. Colonel Patrick Smith.
COL PATRICK SMITH: Thank you for the opportunity to speak. I am Colonel Pat Smith. I am the
Director of Local Outreach at Denton Bible Church in Denton, Texas. I am also a board
member with United Way of Denton County. I also oversee all local outreach. We're the
largest church in down in Denton. We are very avid—or active in passing our local ordinance
that regulated payday lenders.
My brief comments are, one, I have had to refer to deal with numerous cases of individuals
with payday loans. The arbitration process that we followed in the one case was—it
was nonexistent. The way the contract was structured, this lady had no recourse. She
had no understanding. She was a 73-year-old widow. Her father—or her husband was a World
War II veteran. She had no understanding of what arbitration was, so education is key.
The second case—and we finally settled that. The church and people in the community stepped
up and basically paid $10,000 for what started out to be a $75 loan. So from then on, I have
now referred cases to a local law firm, and we have filed a class action lawsuit against
TitleMax.
And I go back to a previous comment that was made that there is fraud in these contracts.
The people that are signing these contracts don't have legal counsel. They don't have
the expertise to review and understanding what they are signing, and there's only one
way to raise visibility to fraudulent practices, and that is through a lawsuit.
ZIXTA Q. MARTINEZ: Thank you, Colonel Smith.
COL PATRICK SMITH: And lack of transparency is really hurting our citizens of our country.
ZIXTA Q. MARTINEZ: Thank you for your comments.
Kelvin Bass?
[No audible response.]
ZIXTA Q. MARTINEZ: Dean Malone?
DEAN MALONE: Good afternoon. My name is Dean Malone. I'm a lawyer here in Dallas, and I
represent consumers. I have a small law firm. We represent consumers primarily in abusive
debt collection and car dealer fraud cases.
There's a fiction out there that consumers have some idea as to what they are signing
when they agree to forced arbitration, and we all know by forced arbitration, it's binding
mandatory arbitration, pre-dispute, and it's typically in the case of a retail installment
contract on the back of the agreement.
Consumers rarely, if ever, read the back of such agreements, and even if they had, they
have no clue as to what arbitration is. When people show up in my office and I have to
tell them, "Hey, you've got an arbitration agreement," and explain it to them, they had
no idea that if they had a dispute with whoever it is we're having an issue with that they
wouldn't get a judge and they wouldn't get a jury, but they would get someone appointed
by an organization that they've never heard of.
Arbitration affects access to the courts. It affects access of consumers to redress.
The plaintiff's bar and the defendant's bar know that arbitration, when it's in an agreement,
affects the value of a claim. For years, my firm would not take car dealer fraud cases
because we couldn't economically do so.
I've got a good friend who is an attorney who did take car dealer fraud cases and no
longer does so because of arbitration. Arbitration—
ZIXTA Q. MARTINEZ: Thank you, Mr. Malone.
DEAN MALONE: Thank you.
ZIXTA Q. MARTINEZ: Appreciate the comments.
Yannis Banks?
[No audible response.]
ZIXTA Q. MARTINEZ: Lisa Sherrod?
ATTENDEE: We've got Mr. Banks right here.,
YANNIS BANKS: How are you doing? Yannis Banks with the Texas NAACP.
I want to just second the comments that have already been made about payday lending and
car title loans, and that we beat that horse even more. I think enough has been said about
it. There's not much I can add to it, just to say that we would welcome you back, not
just to Dallas, but all of Texas, so you can hear the stories from elsewhere, in Houston,
El Paso, San Antonio, and other places, so you can hear more of the stories and the suffering
people are going through.
I do want a sentiment that when it comes to arbitration, there needs to be a better cross-section
of arbitrators, so you can have—you have a lot of them who may have close ties to the
industry that they are maybe trying to arbitrate. So you want to have more, a broader range
of people who can do the arbitration.
And we agree with what's been said. Arbitration should be optional. It shouldn't be forced.
It shouldn't be mandatory. If both parties agree to arbitration, that's good. If not,
let the consumer have their day in court. Take them to court and have their day there
to try to get the resolution.
We also believe that there should be some kind of certificate or certification through
you all that the arbitrator should have to get. We understand there are two companies
already that do it, but there should be some kind of certification through the CFPB that
arbitrators have to go through and make sure they are arbitrating in a proper way and have
specific rules for consumer arbitrators as well through you all and have a program set
up to increase the number of arbitrators.
And we agree that you should look at the track record of the arbitrators also. If you see
that—you know, the consumer should be able to see and the lawyers who represent the consumers
should be able to see which arbitrators are—or how are they ruling. If you see arbitrators
are ruling 90 percent a time for one certain company, people should know that, because,
of course, they are going to keep going back to the arbitrator. They will have that kind
of database set up to know that, yes, this person—rules in our favor more times than
anything else, we want to keep going back to them.
And as lawyers, when I was speaking to my boss this morning, he was saying when they
do their arbitration, he will have a list of names that he can throw out, and they agree.
If it's in the same list, that's the person they take, and if you don't know—
ZIXTA Q. MARTINEZ: Thank you, Mr. Banks.
YANNIS BANKS: Thank you.
ZIXTA Q. MARTINEZ: We'd be happy to take all of your comments if you'd like to xerox them
and give them to staff.
YANNIS BANKS: Not a problem.
ZIXTA Q. MARTINEZ: Lisa Sherrod?
[No audible response.]
ZIXTA Q. MARTINEZ: Pat Smith?
[No audible response.]
ZIXTA Q. MARTINEZ: Stuart Miller?
[No audible response.]
ZIXTA Q. MARTINEZ: That concludes the CFPB's Field Hearing at The Black Academy of the
Arts and Letters in Dallas, Texas. Thank you all for taking the time to join the CFBP today,
and thank you all who joined us by live stream at consumerfinance.gov. Have a great afternoon.
We would be happy to take folks' written statements to augment the record of this field hearing.
Thank you, Dallas, Texas.