Defending the Rights of Consumers

22 August 2017

The New York Times published an important and excellent Op-Ed on Tuesday, August 22, written by Richard Cordray, the director of the Consumer Financial Protection Bureau. The article, “Let Consumers Sue Companies” highlights an important issue for protection of consumer rights – that is, of your rights.

Cordray lays out the issue succinctly:

Companies have the choice of taking legal action together. Yet consumers are frequently blocked from exercising the same legal right when they believe that companies have wronged them.

That’s because many contracts for products like credit cards and bank accounts have mandatory arbitration clauses that prevent consumers from joining group lawsuits, forcing them to go it alone. For example, a group lawsuit against Wells Fargo for secretly opening phony bank accounts was blocked by arbitration clauses that pushed individual consumers into closed-door proceedings.

This is an important issue, for this reason. Many contracts between a consumer and a giant corporation include two provisions that effectively lock consumers out of the courtroom, even in clear cases of injustice. The first, provides that in any dispute between the consumer and the corporation must be resolved by arbitration, rather than by going to court. The second provides that consumers can’t band to together with other consumers, even if they have suffered the identical wrong.

Why is this a problem? Here is Cordray’s answer:

Almost nobody spends time or money fighting a small fee on their own. As one judge noted, “only a lunatic or a fanatic sues for $30.” When a bank charges illegal fees to millions of customers and then blocks them from suing together, a result is not millions of individual claims, but zero. So the bank gets to pocket millions in ill-gotten gains.

Predictably, lobbyists for corporate interests have “unleashed attacks to overturn the rule, and the House just passed legislation to that end.” Cordray, however, rebuts each of the attacks, as follows:

First, opponents claim that plaintiffs are better served by acting individually than by joining a group lawsuit. This claim is not supported by facts or common sense. Our study contained revealing data on the results of group lawsuits and individual actions. We found that group lawsuits get more money back to more people. In five years of group lawsuits, we tallied an average of $220 million paid to 6.8 million consumers per year. Yet in the arbitration cases we studied, on average, 16 people per year recovered less than $100,000 total.

[The] rule does not ban individual arbitration, as our opponents falsely claim. It simply ensures that consumers have the option of joining together to sue companies. Companies and consumers can still use arbitration to resolve their differences, but companies cannot unilaterally block group lawsuits.

Opponents also claim that the rule benefits lawyers rather than consumers. In reality, lawyers collect a small portion compared with consumers, and only if they succeed. For every $10 that a company pays out for wrongdoing, we found about $8 goes to consumers and $2 goes to pay legal costs. In any event, banks choose to hire lawyers to file class-action lawsuits, and ordinary people deserve to make the same choice.

Finally, this rule does not risk the safety or soundness of the banking system. We estimate the potential costs of this rule for the entire financial system at under $1 billion per year, whereas banks alone made $171 billion in profits last year. The law already bans mandatory arbitration clauses in financial contracts for military service members and in mortgages (the largest consumer financial market), yet the financial sector remains strong.

Cordray makes an additional point, and this one, too, is important. The proposed rule allowing consumers to band together to fight corporate wrongdoing, not only benefits the wronged individuals – it also deters continuing wrongful conduct. As Cordray puts it,

Not only do group lawsuits help consumers recover money they otherwise would forfeit, but they also protect many more consumers by halting and deterring harmful behavior. For example, when banks reordered bank debits to charge more overdraft fees, consumers sued and recovered $1 billion. Most banks have since stopped the practice.

His conclusion should be required reading for everyone who believes in our American system of civil justice:

In truth, by blocking group lawsuits, mandatory arbitration clauses eliminate a powerful means to get justice when a little harm happens to a lot of people. It is the height of hypocrisy for companies to say they’re helping consumers by closing off the very same legal option they use when they’ve been wronged.

A cherished tenet of our justice system is that nobody should escape accountability for breaking the law. Our rule restores consumers’ legal right to stand up for themselves and have their day in court without having to wait on the government to act. That is an idea everyone should support.

The article may be found at, although it may be hidden behind a paywall.

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