Consumer Financial Protection Bureau strikes blow against forced arbitration

For many of us it may be the most important contract we ever sign.  It’s the contract that sets the terms for what often is our single largest investment – our home.

Richard Cordray

But what happens if the bank that holds our mortgage tries to cheat?  What if they improperly hide fees, or raise rates or even try to foreclose on the property illegally?  Banks have sought to protect themselves by inserting “forced arbitration” clauses into mortgages and home equity loans.

As we’ve noted previously on this Blog, under forced arbitration, consumers who buy defective products or are overcharged for services are barred from taking their cases to court.  Instead, they must use a private arbitration firm chosen and paid for by the business itself.  These clauses also often ban class actions, which allow individuals to band together to bring their common claims.

Having a dispute settled by arbitration is like playing a baseball game in which the other team hires, fires – and pays – the umpires.  One study of top arbitrators for one major arbitration firm found that they rule for the corporations that hire them 93.8 percent of the time.

One of the reasons we refer to the current Supreme Court majority as “The 1% Court” is its enthusiasm for inflicting forced arbitration on consumers.

But Congress drew the line at home mortgages.  Section 1414 of the Dodd-Frank Wall Street Reform and Consumer Protection Act bans forced arbitration in mortgage disputes.  Regulations implementing the law had to be issued by an agency created by that law – the Consumer Financial Protection Bureau.  Those regulations took effect June 1. Section 1028 of the Act also mandates that the CFPB study and report to Congress on “the use of agreements providing for arbitration . . . in connection with the offering or providing of consumer products or financial services.”

You remember the CFPB.  That’s the agency Republicans hate so much that they’ve vowed to filibuster anyone President Obama nominates to run it unless the President agrees to eviscerate Wall Street reform.  That includes the current agency director, Richard Cordray, named to the position through a recess appointment that was called into question by a ruling of the D.C. Circuit Court of Appeals.

The new forced arbitration regulation makes clear what this fight and the other fights over President Obama’s nominees really are all about.  They're about Republicans who can’t stand Wall Street reform or consumer protection or anything that gives everyday Americans a fighting chance against corporate special interests.

That’s why the fights ahead over Cordray, and President Obama’s nominees to the D.C. Circuit and his  nominees for posts like Secretary of Labor, Environmental Protection Agency Administrator and the National Labor Relations Board, are so important.  That’s why, if Senate Republicans refuse to allow yes-or-no votes on these nominees, the Senate majority needs to revisit reforming Senate rules.

Supreme Court should hear appeal of recess appointment decision ASAP

As expected, the Obama Administration is asking the Supreme Court to review a ruling by the United States Court of Appeals for the District of Columbia Circuit that nearly eliminates the ability of a president to make “recess appointments” to federal agencies.

Caitlin Halligan

With Senate Republicans abusing the filibuster at an unprecedented rate, a recess appointment sometimes is the only way to fill vacancies.  Indeed, Republicans have used the filibuster to cripple agencies they don’t like, such as the National Labor Relations Board (NLRB) and the Consumer Financial Protection Bureau.

But when the president used his only alternative, recess appointments, the D.C. Circuit broke with decades of precedent and decisions from every other circuit to rule on the issue to invalidate those appointments.   The decision being appealed now, discussed in detail in this previous post to Justice Watch, left the entire NLRB in limbo.   That post also discusses the fact that this kind of extreme activism is nothing new for the conservatives on the D.C. Circuit – a court widely viewed as the nation’s second most powerful.

They get away with it because there are four vacancies on the eleven-member court, and among the remaining seven judges, conservatives hold a majority.  Senate Republicans are going to extremes to try to keep it that way.  First, they filibustered an excellent nominee, Caitlin Halligan, and now some Republicans are trying to eliminate three of the Court’s seats.

The Supreme Court should hear this challenge as soon as possible.  President Obama needs to move full speed ahead and send the Senate enough nominees to fill every vacancy on the court.  And Senate Democrats need to reform Senate rules, if that’s what it takes, to break the Republican addiction to obstruction.

Arbitration Contracts and a Different Problem of Bargaining Power

Joe Nocera has a column in the New York Times about the fight to nominate, or for that matter confirm, Elizabeth Warren, or for that matter anyone, to head the new Consumer Financial Protection Bureau, created by last year’s historic Wall Street reform legislation. Senate Minority Leader Mitch McConnell has preemptively threatened to filibuster Warren if she’s nominated by President Obama, and gone further by insisting that significant changes be made to the agency’s structure and powers before any nomination happens. House Oversight and Government Reform Committee Chairman Darrell Issa has poured fuel on the fire with his “round[s] of browbeating” in that committee, subjecting Warren to accusation and embarrassment over what has actually been a quite successful tenure as advisor to the nascent CFPB.

But this story is about more than Capitol Hill power-politicking. Elizabeth Warren and President Obama aren’t even the real victims here. The CFPB was tasked by the Dodd-Frank bill with conducting a study on forced arbitration clauses (“arbitration of any future dispute,” in the statutory language) in consumer financial products and services. Once that study is complete, the agency will have the power to enact regulations consistent with its results. Those results probably won't look good for the financial industry.

Millions of Americans are already subject to forced arbitration contracts, and every day thousands more unwittingly sign, click, or become unilaterally subject to new fine-print terms. The Supreme Court’s decision in AT&T Mobility v. Concepcion will likely increase the pace at which corporations add binding arbitration clauses to their consumer contracts. The CFPB can stop or limit the practice, but only after its study is complete, and only after writing and issuing a regulation. Even then, the Dodd Frank Act builds in a 180 day waiting period after the regulation takes effect (which in itself can be delayed by the administrative process), and only after that will new arbitration contracts be regulated.

Every day that the White House and Senate are delayed from confirming a director to the CFPB pushes back the time when this badly-needed change will come to the financial industry. And that day is already going to be six months too late for many.