Dallas, TX: Field Hearing on Arbitration


[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 rape 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.

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