A good turn for con­sumers

The Washington Post Sunday - - DIVERSIONS - Michelle.sin­gle­tary@wash­post.com

The Con­sumer Fi­nan­cial Pro­tec­tion Bureau may be un­der at­tack from Repub­li­cans, but if it’s go­ing out, it’ll be like a lion, not a lamb.

In is­su­ing a new rule, the watch­dog agency took away a pow­er­ful tool that fi­nan­cial in­sti­tu­tions used to avoid be­ing sued by groups of con­sumers.

When­ever you ob­tain a fi­nan­cial prod­uct, such as a credit card, you get a writ­ten le­gal con­tract. In it, con­sumers of­ten un­know­ingly agree to manda­tory ar­bi­tra­tion to set­tle dis­putes. Tens

of mil­lions of peo­ple use fi­nan­cial prod­ucts or ser­vices that are sub­ject to pre-dis­pute ar­bi­tra­tion clauses, ac­cord­ing to the CFPB.

Un­der the new rule, com­pa­nies can still in­clude ar­bi­tra­tion clauses in con­tracts, but they can’t stop con­sumers from join­ing a class-ac­tion law­suit. This is a game changer.

Manda­tory ar­bi­tra­tion clauses, ac­cord­ing to CFPB Di­rec­tor Richard Cor­dray, have al­lowed com­pa­nies to “avoid ac­count­abil­ity by block­ing group law­suits and forc­ing peo­ple to go it alone or give up.”

This rule came about be­cause of the 2010 Dodd-Frank fi­nan­cial re­form leg­is­la­tion, which the Trump ad­min­is­tra­tion and Repub­li­cans have been try­ing to dis­man­tle. The leg­is­la­tion re­quired the CFPB to study the use of ar­bi­tra­tion agree­ments and re­port back to Congress. The rule is a re­sult of that re­port.

I see it as bit­ter­sweet. The rule change is a win, for sure, but not nec­es­sar­ily for ag­grieved in­di­vid­u­als who may dream of a big set­tle­ment in a court case to pun­ish wrong­do­ing.

In class-ac­tion cases, lawyers can walk away with mil­lions. Con­sumers may get some money, but it is sel­dom a huge pay­day in­di­vid­u­ally.

Re­cently, I was read­ing a mes­sage board about a clas­s­ac­tion suit filed against AT&T in 2010. The com­pany was ac­cused of im­prop­erly col­lect­ing taxes from cus­tomers for cer­tain state and lo­cal taxes for In­ter­net ac­cess on their smart­phone, which plain­tiffs claimed vi­o­lated the In­ter­net Tax Fee­dom Act. The busi­ness ended up set­tling, agree­ing to help peo­ple get a re­fund for the over­age.

One cus­tomer com­plained about re­ceiv­ing a check for one penny: “Guess they couldn’t find a way to send less.”

“A whop­ping $0.03!!,” another per­son wrote. “I betcha those at­tor­neys made out like ban­dits on this set­tle­ment.”

In re­sponse to this cus­tomer, a com­pany rep­re­sen­ta­tive wrote, “The le­gal fees as­so­ci­ated with the set­tle­ment and the costs of ad­min­is­ter­ing the fund, etc. will be de­ducted from each class mem­ber’s share of the set­tle­ment.”

There were 92 at­tor­neys who rep­re­sented cus­tomers in the AT&T case. They stand to col­lect 20 per­cent of the cash re­cov­ered from the tax­ing author­i­ties, which, at the high­est es­ti­mate, could net $191 mil­lion plus costs and ex­penses. And therein lies the prob­lem with class-ac­tion suits: Cus­tomers of­ten feel cheated even when they win.

I’ve been crit­i­cal of the out­comes for in­di­vid­ual con­sumers in class-ac­tion set­tle­ments, hav­ing been on the re­ceiv­ing end my­self of piti­ful pay­outs. The set­tle­ments I re­ally loathe are those promis­ing a dis­count on my fu­ture busi­ness with the com­pany. How is that a pun­ish­ment?

How­ever, I do sup­port the new ar­bi­tra­tion rule, which ap­plies only to new con­tracts with fi­nan­cial in­sti­tu­tions. This is an im­por­tant con­sumer pro­tec­tion.

Set­tle­ments in class-ac­tion law­suits gen­er­ally in­clude or­ders for com­pa­nies to change their con­duct.

In its re­port to Congress, the CFPB found that, in set­tle­ments in­volv­ing 53 groups that rep­re­sented 106 mil­lion con­sumers, the com­pa­nies in ques­tion agreed to im­ple­ment new pro­ce­dures and/or stop what they were do­ing.

Key to the new rule is also the trans­parency it will re­quire. More in­for­ma­tion will be made pub­lic about in­di­vid­ual ar­bi­tra­tion cases and the out­comes. The data on how cases are set­tled in ar­bi­tra­tion is lim­ited, the CFPB wrote. In the cases the agency was able to review, con­sumers won an av­er­age of 12 cents for ev­ery dol­lar they claimed.

It’s im­por­tant to note this fight is not over.

“We an­tic­i­pate that this mod­er­ate rule will be strongly chal­lenged by in­dus­try lob­by­ists push­ing mem­bers of Congress to once again choose Wall Street in­ter­ests over Main Street,” said Linda Sherry, di­rec­tor of na­tional pri­or­i­ties for Con­sumer Ac­tion.

I agree with one point that crit­ics at­tempted to use to de­rail the rule­mak­ing by the CFPB: Class-ac­tion at­tor­neys stand to get a greater fi­nan­cial ben­e­fit be­cause more group law­suits will be al­lowed to go for­ward. I don’t be­grudge the at­tor­neys earn­ing fair fees. Yet when you get a check for a few dol­lars and the lawyers get mil­lions, it’s hard to view that you’ve won a battle.

Still, even though in­di­vid­ual con­sumers might not get big pay­outs, class-ac­tion set­tle­ments or even the po­ten­tial for a le­gal chal­lenge can bring about bet­ter busi­ness prac­tices. This makes the set­tle­ments valu­able to all.

A hor­ror story: What would you do if the U.S. econ­omy col­lapsed?

If you are sav­ing for re­tire­ment this is one rule you need to know

Michelle Sin­gle­tary THE COLOR OF MONEY

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