Video Suggestions

by | Aug 17, 2017

Video 1

“With ‘Rip-Off Clause’ Quashed, Consumers Can Now Sue Banks in Class-Action”
Note: In addition to the video, please see the following article, also included at the below-referenced internet address:
According to the article, the lucrative and costly business of class-action lawsuits has been turned upside down by a new federal rule. And the fight to save or kill it has just begun.

After years of review on the subject, the Consumer Financial Protection Bureau, an independent federal watchdog agency, declared a new rule recently that bans banks, credit card companies, payday lenders and other financial firms from requiring consumers to settle group disputes through arbitration. These mandatory arbitration clauses, found in many credit card and bank account contracts, have effectively killed class-action lawsuits.

With the rule in place, consumers can now freely band together to fight back what they consider to be illegal or fraudulent products or practices and more class-action lawsuits are inevitable. It will also force financial firms to proactively monitor their own practices, its advocates say.

“The biggest step has been taken. This is a huge victory for consumers” said Amanda Werner, campaign manager at Americans for Financial Reform and Public Citizen. “We expect a lot of misconduct is going to be rooted out sooner.”

Wells Fargo’s much-maligned fake-account scandal, revealed in 2013 by a Los Angeles Times report, would have been more widely known sooner if the arbitration clause hadn’t been in its contracts, she says. Consumers have repeatedly sought to sue the bank for years for the bank’s practice of creating unauthorized checking and credit card accounts. “But their case has been kicked out over and over again” because of the arbitration requirement, Werner said.

Wells eventually agreed to pay $185 million in penalties and $5 million in customer reimbursement for opening as many as 2 million accounts without customers’ authorization.

Odds are stacked against consumers when it comes to arbitration. They lack the institutional knowledge of banks whose legal teams are familiar with arbitrators. And that’s partly why there are so few arbitration cases. Only about 400 consumers file arbitration per year against financial companies.

The likelihood of consumers winning in arbitration is also low. Only 9% of consumers win in arbitration against financial companies, the consumer bureau said in a report.

Compared to lawsuit outcomes, arbitration also leads to smaller payouts for consumers. In studying the five-year period from 2008 to 2012, the bureau said over 34 million harmed consumers received payments of about $1 billion that were ordered by judges or juries in lawsuits. But in about 1,000 cases in the two years that the bureau studied, arbitrators awarded about $360,000 to 78 consumers.

Bankers counter that the average per-individual payout is higher in arbitration. “The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit,” said Richard Hunt, CEO of Consumer Bankers Association.

For banks, the possibility of facing more class-action lawsuits will likely drive them to store more funds in their reserves and possibly pass-on costs to consumers in fees, Hunt said.

But there’s no evidence to the assumption that banks will raise fees, Werner said. Bank of America and Capital One have already dropped the arbitration clause for group disputes. And they haven’t raised their fees as a result, she said.

Still, banks aren’t whimpering away. Hunt said he’d “leave no stone unturned” in his fight to quash the rule. And industry-friendly lawmakers also promised carry on the fight to retain banks’ right to mandate arbitration. Financial firms will lobby to kill the rule in Congress. And if that fails, there will likely be lawsuits.

Sen. Tom Cotton, R-Ark., heeded the industry’s call, announcing recently he has started a process to kill the rule using a law called the Congressional Review Act. The law allows Congress to kill an agency rule with 60 legislative days with simple majority votes in both chambers.

Rep. Jeb Hensarling, R-Texas, who is chairman of the House Financial Services Committee, also called for the rule to be killed.

Both sides expressed confidence that they will prevail. The rule has wide populist appeal and despite their majority, Republican lawmakers could find it difficult amass enough votes, Werner said. Last year, a poll by Pew Charitable Trusts found that 95% of Americans support financial consumers’ right to be heard in court. “This is big-guy vs. little-guy.”

If there’s no legislative fix on their favor, financial firms will sue and they will likely seek an injunction to block the rule from going into effect while litigation is pending, said Quyen Truong, an attorney at Stroock & Stroock & Lavan and former deputy general counsel for litigation, enforcement, and oversight at the bureau.

Leadership changes at the consumer bureau could also play a role in how the rule is enforced. Richard Cordray, the Obama administration appointee who runs the agency as its director, is scheduled to step down next year and be replaced by a Trump appointee. “There may be new leadership at the CFPB that wouldn’t defend the rule as aggressively as the current leadership,” Truong said.

Discussion Questions

1. What is a mandatory arbitration clause?

Arbitration is an alternative method of dispute resolution (i.e., an alternative to civil litigation). In arbitration, a neutral third party known as the arbitrator serves as the fact-finder and applies the law to the facts of the case in order to reach a decision. Arbitration can be either binding or non-binding. If it is binding, the arbitrator’s decision is final, and cannot be appealed. If it is non-binding, one or both parties can pursue the case further in civil court.

Usually, arbitration is decided by agreement. In other words, the parties stipulate in a contract that in the event of a dispute, they will have their case addressed via arbitration.

A mandatory arbitration clauses simply means that in the event of a dispute, the parties must submit their case to arbitration.

2. What is a class action lawsuit?

A class action lawsuit is a collective lawsuit brought by a number of plaintiffs who believe they have been harmed as a result of the defendant’s wrongful actions. The number of plaintiffs in a class action lawsuit can be in the thousands, depending on the number of aggrieved individuals who choose to participate in the class action.

3. As the article indicates, in a poll conducted by Pew Charitable Trusts last year, 95% of Americans support financial consumers’ right to be heard in court. If that is the case, why would Senator Cotton and Representative Hensarling favor “killing” the new rule that bans banks, credit card companies, payday lenders and other financial firms from requiring consumers to settle group disputes through arbitration?

Perhaps the best way to answer this question would be to present it to Senator Cotton and Representative Hensarling! Arguably, the strongest argument in favor of their initiative is that both parties (financial firm and consumer) have agreed to arbitration by way of consent to the arbitration clause. However, are arbitration clauses really negotiable if they are included as standard language in virtually every credit card and bank account contract? Another argument in favor of arbitration is that it reduces the caseload in our judicial system. However, the Seventh Amendment to the United States Constitution does guarantee the right to a jury trial in a civil case.

Video 2

“Tech Companies Rally for Net Neutrality Day of Action as FCC Aims to Roll Back Rules”

Note: In addition to the video, please see the following article, also included at the below-referenced internet address:

According to the article, some of the biggest tech companies, like Facebook and Google, are participating in the Net Neutrality Day of Action, a protest of the Federal Communications Commission’s plan to roll back Obama-era rules that increased government oversight and required online service providers to treat all internet traffic the same.

But in May, the Republican-led FCC voted to start changing net neutrality rules.
Information online flows over pipes to your computer, Wired editor-in-chief Nicholas Thompson explained. Net neutrality prevents internet service providers including Comcast, Time Warner Cable or Verizon from treating websites using those pipes differently.

“So the companies that own the pipes can’t say, ‘you know what? We don’t want that website to be fast. We want that one to be slow. And we don’t like what that one is saying, so we’re going to stop it all together. And maybe you’d like a tiered plan so you can get Wikipedia, right?’ So net neutrality is a very important principal for the people on the internet,” Thompson said.

The core of net neutrality is that “the internet has been a place of openness,” Thompson said.
“It’s a place where you can start a company, where you can do what you want, and you can be reasonably certain that if you put a website on the internet, people will be able to get to it. But if we don’t have net neutrality, and you start a company that is opposed to something that Comcast is running and is a competitor to something that Time Warner Cable has, they can shut you down. So it’s not just competition,” Thompson said. “It’s the entire principle of the internet. That’s why people are so riled up about this.”

Thompson said the internet providers’ posture is “if we make more money, we’ll invest more heavily in (the pipes), and you’ll get faster speeds.” For the FCC, Thompson said one reason the agency wants to roll back the net neutrality rules is because “they’re very close to the telecom companies.”

“They want to do what’s right for the telecom companies. They will argue that if you give the telecom companies more freedom to control their pipes, they’ll innovate more,” Thompson said. “What everybody else is saying is, no, every time you relax and let telecom companies do what they want, they stifle innovation. It’s not good for everyone.”

Discussion Questions

1. Define “net neutrality.”

As indicated in the article, net neutrality prevents internet service providers including Comcast, Time Warner Cable or Verizon from treating websites using the internet differently. Net neutrality prevents internet service providers from picking “winners and losers” with respect to internet access.

2. What is the argument in favor of net neutrality? What is the argument against it?

The argument in favor of net neutrality is that it does not favor “winners and losers” regarding internet access in terms of the ability to pay more for faster internet speeds. The argument against it is that internet service providers are businesses operating in the free enterprise system, and that they should be able to charge whatever the market will bear for internet access. As referenced in the article, another argument against net neutrality is that if internet service providers are able to make more money by charging differential rates, providers will invest more in internet infrastructure, resulting in faster internet access speed in general. This, of course, depends on whether the companies would voluntarily choose to reinvest such revenue.

3. Do you favor or oppose net neutrality? Explain your response.

This is an opinion question, so student responses may vary.