Taking stock of the CFPB’s Arbitration Rule and its impact when it goes into effect next year is ably covered in this article. Ensuring consumers have recourse when they are ill-used by financial institutions would appear to be a pretty basic point most consumers can agree. At a time when banks need to promote their own transparency and move closer to the consumer, fighting the Arbitration Rule seems counterproductive.
Forced arbitration is not a different way of resolving disputes; it is a way of blocking justice. Indeed, a 2015 CFPB study found few people with small claims pursue their claims individually, either in court or arbitration. More troubling, companies can easily pay off those people who do pursue their claims. Then those same companies can keep violating the law at scale and hold onto the profits from those customers who haven’t figured out what happened or made the effort to pursue a claim.
Class actions, meanwhile, can solve that problem and are essential in assessing how outrageous and broad a company’s misconduct is and holding the company fully accountable for what it has done. The public could chalk up a single case of a fake account to a rogue employee, for instance. It is only by looking at the now 3 million and counting fake Wells Fargo’s accounts that we see that the scandal was a systemic problem at the highest levels of the bank. And it’s not just about the numbers: to figure out what the bank knew and how the problem happened simply isn’t possible in a single case over a few hundred dollars.
Mercator Advisory Group expects the high-profile systemic fraud perpetrated recently will serve well for those that see the benefit of culpability proven under a class action lawsuit. Understanding banks do need to protect themselves against frivolous lengthy lawsuits, the use of the arbitration is not being ruled out, but forcing consumers to use it as a soles means of recourse serves only to create additional emotional distance, and reinforce the perception that banks do not have any interest operating in a fiduciary capacity to consumers. By promoting the understanding of the possibility of wrongdoing and accepting the potential liability for bad actions banks would be better able to regain and build trust with consumers.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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