The Fine Print: No Class-Actions Against Banks? So What

Disclaimer: The following is not legal advice. Please contact Alexander Bachuwa at BachuwaLaw if you have a consumer protection question or claim.

With President Trump’s signature, the Consumer Financial Protection Bureau (CFPB) rule that would have given consumers the right to opt out of arbitration will not go into effect. This means that consumers will have to file their grievances individually in a private arbitration instead of as a consolidated group in a public court of law. In response, Richard Cordray, the head of the CFPB said, “Companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.” In contrast, Thomas Donohue, the CEO and president of the U.S. Chamber of Commerce stated, “Arbitration results in better and quicker outcomes for consumers, so we applaud both houses of Congress for taking action to pull back a rule that would have benefited the class-action trial bar at the expense of American consumers and businesses alike.”

Class-actions can bring about change too by giving individuals a powerful, collective voice. While technically not a class-action, when 46 state attorney generals took on big tobacco on behalf of their states (see 5 Biggest Class Action Settlements or Verdicts Ever), they did more than win $206,000,000,000, they exposed the misleading advertisements of tobacco companies and forced them to change their marketing practices.

On the other hand, the financial gains from successful class-actions disproportionately favor lawyers over clients while producing no meaningful results for consumers. In a preposterous case, consumers sued Red Bull for false advertising because the drink did not ‘give them wings’ as the advertisement promised. When the case settled, the attorneys received $4,750,000 and the consumer received a four pack of Red Bull.

Class-action lawyers will point to the tobacco case to show why class-actions are indispensable for keeping big business accountable. Banks will point to cases like Red Bull in an effort to make lawyers look like money hungry wolves.

In the context of bank disputes both sides have exaggerated the benefits and drawbacks of class-action vs. arbitration.

Those for Consumer Arbitration

Supporters of consumer arbitration state that consumer arbitrations have worked out ‘wonderfully’ for consumers.

I have had success against Citibank (see Beating Citi in Arbitration & The Successful Fight Against a Citi Shutdown) but that is the exception not the rule. Consulting LevelPlayingField.io, it is apparent that victories are not easy to come by. And if there is favorable settlement, chances are it will remain confidential. There’s nothing wonderful about that.

Those Against Consumer Arbitration

“Big financial companies can lock the courthouse doors and prevent consumers who’ve been mistreated from joining together to seek the relief they deserve under the law,” George Slover, senior policy counsel for Consumer’s Union.

It is true that the courthouse doors may be closed, but the arbitration express lane is wide open. Not only is there no traffic, but also there is no toll for taking this expedited route to obtain relief. In most consumer arbitration agreements, the company has to pay all of the filing fees. Although it is technically done on a case-by-case basis, companies cannot ignore when they receive an invoice for tens of thousands of dollars from the aggregate of individual consumers filing the same or similar complaints (see Equifax Data Breach, What It Means Today*). While members of a class have a unified voice, nothing speaks louder than money.

What It Means for You

Class-action lawsuits against banks are dead. Besides unpredictable small claims courts, consumer arbitration is the only mechanism to resolve disputes against banks. While it may not always be a fair fight (see The Corporate Insurgence), it does not mean that it is not a fight worth waging. Many of my clients have had great success against banks whether it be from accounts being shut down without notice, points clawed back despite meeting the spending requirements, or rebates not being given despite promises to do so. The banks wanted consumer arbitration, lobbied for it, and were able to get Congress to uphold it. Now, let’s let them have it.

About Alex Bachuwa

Alexander Bachuwa is a New York attorney who focuses on consumer protection. He is also a BoardingArea blogger. Contact Alex at through his website at bachuwalaw.com and visit thepointsoflife.com

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Jon Lombardini
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Jon Lombardini

I think you’re missing the biggest point. Most people cannot afford the cost, either in money or time, of arbitration. Class action lawsuits were a way for consumers to get justice for major corporate transgressions without having to pay large sums of money up front, and without having to invest all of their time. Now banks are free to act as irresponsible as they wish, knowing the worst that can happen is someone can sue in small claims court for paltry sums, or someone has to have a stronger legal team than the banks, which is unlikely. I don’t see how anyone, even lawyers, can find this a good thing.

Jon
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Jon

You sound like a shill for big banks. What could possibly be more anti-consumer than this law. There is absolutely no reasonable argument against class actions. Class actions are to hold powerful companies responsible for harming or cheating consumers, not to make consumers rich. They exist to give the little guy power where they had none.

Jon Lombardini
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Jon Lombardini

Out of 100 people, how many can afford to hire your law team from their own pocket?

Jon Lombardini
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Jon Lombardini

So the customer is completely at the mercy of weather a lawyer thinks they can win a case. How is that justice? It might be a great thing for you, a lawyer, but it is not at all in the average consumer’s best interest. You can argue til you’re blue in the face, but most three year old’s can see the underlying injustice here. It’s sad that you can’t.

Chebyshev
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Chebyshev

key point here is that arbitration, while perhaps helping consumers individually, will not drive a change in corporate behavior that helps all consumers as a whole. so at the micro level it may be great and bring about greater financial wins for a handful of consumers and lawyers, at the macro level, the corporations win again, as always.

wise2u
Guest
wise2u

It is not about consumer protectionism, it is Trump taking away oversight to more major corporations, and undoing anything that resembled progress from the Obama administration. Frank Dodd act took years to develop in the wake of the banking crisis and the “final rule” was the last addition.. The GOP and Trump love destroying anything Obama completely, instead of building upon the good and getting rid of the bad parts, which would be progressive, they prefer to dismantle without a plan to replace it with (health care is a prime example). Trump has taken away protection for consumers and workers in the guise of cutting red tape and making it easier for big business to be profitable. He would like to dismantle the EPA and unions and will forever favor big business over the American citizen….now banks own a lot of Venezuela debt because they skirted the rules and bought it on the secondary market, will the public be able to hold the banks accountable next time they back bad debt like the mortgage crises of a few years ago, by arbitration?!?

Frank
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Frank

What a self-promoting pile of b.s. Yeah, I am sure that you have the folks at Equifax quaking in their boots because you’ve filed a dozen arbitration demands at $3400 a pop against them. That’s the change that they leave in the couch and don’t even bother picking up. And how many more clients can you handle in your one-man shop with no paralegal? 100? Well, that only leaves 2,499,900 affected individuals without any representation or remedy.

Class actions have been proven to be the only effective means of representing consumers’ interests and forcing meaningful change in unethical and illegal corporate practices. Why do you think the banks and other corporations fight so hard and spend so much trying to eliminate them? For you of all people, a self-styled “consumer attorney,” to suggest otherwise is really disheartening. You ought to consider taking down this post.

Sexy_kitten7
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Sexy_kitten7

@Alex I think your opening paragraph is a bit misleading. Some consumers (not all) will still be able to opt out of arb agreements and form classes. The law does not outlaw these activities. It merely allows banks to prohibit them.

Unrelated question: Why hasn’t anyone challenged Hulu’s misleading “No Commercials” Plan in court? Seems like an easy win.

Herman Cain
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Herman Cain

Sounds like a lot of people talkin’ a lot of talk, but nobody runnin’ for senate to do anything about it. Alex 2020 – “For the Consumers!”

Kalboz
Guest

Hate to sound selfish, to be honest with you, I rather get the $3400 through arbitration than $12.50 through class action … just sayin’! 😉

@Alex, need representation on that Equifax data breach fiasco!

Lee @ BaldThoughts
Guest

I can see the argument both for and against this.  As with most things in life, whether you like the rules or not, you need to adjust your strategy accordingly.  Having a lawyer who is willing to take your case on contingency can still provide an effective way to fight the banks.  And, honestly, many times they’ll just pay you to go away if you have a reasonable case.  Don’t give up!

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[…] The Fine Print: No Class-Actions Against Banks? So What. – I can see the argument both for and against this.  As with most things in life, whether you like the rules or not, you need to adjust your strategy accordingly.  Having a lawyer who is willing to take your case on contingency can still provide an effective way to fight the banks.  And, honestly, many times they’ll just pay you to go away if you have a reasonable case.  Don’t give up! […]

bc
Guest
bc

the only thing this guy is doing is informing us of new rules regarding how we, as individuals, can have a prayer of a chance.

he is trying to help us know what we can do when we get hosed by “the man.” will he get paid if we use his services? yes. just like the dude at mcdonald’s gets paid when we place our order with him. or the cashier at wal-mart.

but getting paid doesn’t seem to be his motivation. i don’t see him as an ambulance chaser smacking us with 1-800 numbers to call.

yet…

…you guys seem to be bashing his skull.

huh??

Mangar
Guest
Mangar

No more Class Action lawsuits against banks? I am saddened by this. I was so looking forward to being part of a class action against Well Fargo, and receiving a 25$ Gift Certificate to Starbucks, and a Wells Fargo wall calendar.