Regulator moves to ban most arbitration clauses

Consumers could band together to sue their banks or credit card companies under a federal rule issued Monday that’s likely to face resistance from Congressional Republicans and the White House.

The Consumer Financial Protection Bureau decided to ban most types of mandatory arbitration clauses, which require credit card or bank customers to use a mediator when they have a dispute — often giving up their right to sue in court.

Mandatory arbitration clauses are found in the fine print of tens of millions of financial products, from credit cards to checking accounts. Because consumers generally don’t carefully read the fine print on the agreements for their checking accounts and credit cards, they are often unaware they are subject to arbitration.

Those clauses are not symbolic. They are used heavily by banks. Even Wells Fargo banned customers from filing classaction lawsuits against it during the height of its sales practices problems, until pressure from politicians and outside groups led the bank to waive that restriction earlier this year.

Consumer advocates have been pushing for years for stricter federal regulation of these types of clauses. The clauses, said Richard Cordray, director of the Consumer Financial Protection Bureau, are a way for banks and other financial companies to “sidestep the legal system.”

“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, senior fellow at the Consumer Federation of America, an umbrella group for dozens of consumer advocacy organizations.

Banks have strongly opposed banning arbitration causes, arguing that arbitration is a more efficient way of handling small disputes and that classaction lawsuits largely benefit the lawyers handling the cases. But there’s also a bottom line impact: banks could be exposed to billions of dollars in lawsuits from customers. In a hypothetical example, a consumer wanting to dispute a $35 overdraft charge is not likely to hire a lawyer to sue his or her bank. However, a group of consumers who were all individually impacted by the $35 charge are more likely to dispute it collectively.

“We are not happy, but it’s not surprising,” said Richard Hunt, president of the Consumer Bankers Association, the trade and lobbying group that represents large retail banks like Bank of America, Wells Fargo, JPMorgan Chase and others.

The tussle for supremacy between OPEC and U.S. shale drillers is killing off older oil fields at the fastest pace in almost a quarter century. That could hurt the industry once the current glut has faded.

The three-year price slump triggered by the battle for market share choked off funds for aging deposits elsewhere, accelerating their decline. Output at older fields from China to North America — making up a third of world supply — fell 5.7 percent last year, the most since 1992, according to Rystad Energy AS. It’ll drop about 6 percent in 2017 if oil stays at current prices, the consultant said.

Oil fell from above $100 a barrel in 2014 to as low as $26 in 2016 as the Organization of Petroleum Exporting Countries opened the taps in an effort to stem the surge in shale production. That set off the worst industry downturn in a generation, forcing cost-cutting companies to focus on higher-margin assets at the expense of older, costlier fields. While OPEC changed course last year and curbed output to boost prices, shale was the main beneficiary and resurgent U.S. output has kept crude below $50.

“A lot of the focus is on OPEC and shale and not on the decline at these mature fields, where supply is struggling,” said Espen Erlingsen, a partner at Oslo-based Rystad. “We’re starting to see the long-term impact of lower oil prices.”

Though new projects mean total global production continues to rise, the slide at aging fields may give OPEC a helping hand by reducing surplus supply today, according to Erlingsen. The danger for major oil companies — many of which are gathering in Istanbul this week for the World Petroleum Congress — is that the decline may be difficult to reverse, increasing the risk of future supply shortfalls as spending cuts take their toll for years to come.

Oil deposits go through a number of phases, with production initially rising before flattening out and eventually waning as the reservoir pressure drops. About a third of global output comes from mature conventional fields — about 30 million barrels a day, or around three times Saudi Arabia’s supply — according to Erlingsen. Their fast-declining supply “is making OPEC’s life a little easier,” he said.

Central to the trend is China, where aging fields provide about half the total production, Rystad said. Volumes from those deposits sank 9.5 percent last year, three times the rate of 2015. Even in the U.S., where shale has risen to prominence, about a third of output comes from fields that began pumping last century. Their supply fell 8.3 percent in 2016 and 11 percent in 2015 compared with an average 4.1 percent in the previous five years, Rystad data show.

Decline rates are picking up because of “lower activity in the mature assets, especially in China,” Erlingsen said. “This shows that the low oil prices are having an impact on production from mature fields, and that we see the nonOPEC, non-shale supply coming down.”

One region bucking this trend is Britain’s North Sea. The area has been producing for decades, and is one of the world’s costliest oil provinces, yet new fields are coming on stream as a result of investments made before the 2014 downturn. BP Plc started its Quad 204 project in May and EnQuest Plc’s Kraken development began output last month.

Still, the bulk of mature regions outside OPEC are waning. Consultant Wood Mackenzie Ltd. estimates decline rates at older fields at about 5 percent in 2015 and 2016, compared with “just below” 4 percent from 2012 to 2014.

A decline this year at the pace predicted by Rystad would remove about 1.8 million barrels a day from the market. That’s the same volume as the voluntary cut agreed to by OPEC and its allies last year — a significant help in the group’s quest to eliminate surplus inventories.

In the longer term, the implications for global supply give cause for concern. International Energy Agency Executive Director Fatih Birol has said lower spending on new production will probably result in a shortfall in the next few years. Conventional-oil project approvals dropped to a 50-year low in the past two years, Birol said in January.

Crude’s collapse has forced companies to eliminate tens of thousands of jobs, sell billions of dollars of assets and defer or cancel expansion plans. With little prospect in sight of a strong price recovery, oil bosses are keeping a tight grip on budgets. The IEA will release its latest assessment of energy industry investment Tuesday in Istanbul.

For the time being, enough new projects are keeping oil flowing, said Patrick Gibson, research director for global oil supply at Wood Mackenzie. “The key question is how long it will take for the lack of investments to have a greater impact on global oil supply.”