CFPB Finds Pre-dispute, Forced Arbitration Harms Consumers

A new report from the Consumer Financial Protection Bureau finds that pre-dispute forced arbitration clauses are extremely prevalent in virtually all consumer finance markets and are detrimental to consumers’ ability to seek legal relief when they are wronged. Moreover, the vast majority of consumers are not aware that these clauses exist and do not fully understand how these clauses can be used to deny their access to court.

“Forced arbitration clauses are hidden in complicated language in many contracts that consumers sign to obtain services or products,” said CFA’s Legislative Director and General Counsel Rachel Weintraub in a press statement highlighting the findings of the CFPB study. “These clauses prevent access to the judicial system by forcing people to agree to a private, often secretive, decision making system before a problem has arisen.”

Required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the key findings of CFPB’s Arbitration Study include:

• Arbitration agreements affect tens of millions of consumers.
• Consumers don’t often bring claims against companies on their own.
• When consumers do bring claims against companies, they are much more likely to do so in court instead of through arbitration.
• Consumer finance class actions allow consumers an effective mechanism to collectively seek economic reimbursement when they are harmed by companies, and to remediate business practices.
• Arbitration clauses can act as a barrier to class actions.
• Consumers don’t know they are bound by arbitration clauses and don’t fully understand how these clauses can limit their rights.

“Forced arbitration is often justified on the premise that it is beneficial for everyone, but the results of this study show that it is not beneficial for consumers,” said CFA Financial Services Counsel Micah Hauptman. “Forced arbitration cannot persist if it is used by financial services firms to prevent consumers from vindicating their legal rights, and to insulate themselves from being held accountable for their actions.”

California Proposes Energy Efficiency Standards for Computers and Monitors

The California Energy Commission (CEC) has proposed energy efficiency standards for computers, monitors and displays, which would save California consumers an estimated $430 million annually on their utility bills by the year 2023. CFA and Consumers Union praised the proposal for taking the first steps toward setting new goals for a growing source of energy waste.

“We applaud the California Energy Commission for proposing new standards that appear to be consumer and industry friendly, will save energy and lower total pocketbook costs,” said CFA’s Director of Research Mark Cooper in a press statement. “We will examine the standards in detail and look forward to participating in the proceeding, but our initial reading leads us to conclude that the proposed standards exhibit the characteristics that our research shows result in effective consumer and energy savings.”

In 2014, a CFA analysis found that between the years 2000 and 2013, the amount of electricity gobbled up by computers, game consoles and network connectivity devices increased more than five-fold in the United States, reaching an average of 800 kWh per year per household.

SEC Urged to Refocus on Investor Protection Priorities

The Securities and Exchange Commission needs to refocus its attention on the issues most important to average investors, a group of leading investor protection organizations wrote in a letter to Securities and Exchange Commission Chair Mary Jo White earlier this month.  The letter — signed by CFA, Americans for Financial Reform, AFL-CIO, Citizen Action, Fund Democracy, and Public Citizen — noted that “it has been some time since a comprehensive agenda of retail priorities has been clearly communicated to (or by) the Commission.”

“Average investors are the lifeblood of the U.S. securities markets, providing the capital that American companies need to grow and prosper,” said CFA Director of Investor Protection Barbara Roper.  “While we recognize that the Commission has a large and difficult workload implementing Dodd-Frank and the JOBS Act,” she added, “it cannot afford to relegate average, retail investors’ concerns to a back burner indefinitely.”

The letter identifies 13 priorities in two broad categories: policies to improve regulation of investment professionals and policies to improve regulation of investment products.  Specific issues covered include:

• ensuring that all financial advisers are held to a fiduciary duty to act in the best interests of their customers when providing investment advice;
• addressing conflicts of interest in the compensation practices of broker-dealers;
• adopting 12b-1 fee reforms proposed at the outset of this administration;
• initiating a study of forced arbitration clauses in brokerage contracts to determine whether further action is necessary and appropriate;
• developing a comprehensive regulatory regime for exchange-traded funds (ETFs);
• taking action to address the sale of complex and exotic investment products to retail investors; and
• improving both content, timing, and format of disclosures, with a particular focus on disclosures regarding risks, fees, conflicts of interest, and development of a uniform pre-engagement disclosure document  for brokers and advisers.

“Given the vital role that average investors play in our markets and the overall economy, and the serious short-comings that exist in the regulatory protections they receive, it is time in our view for these issues to be prioritized,” the groups wrote. “We look forward to working with you on developing a revitalized investor protection agenda that would help to rein in abusive industry practices, promote sound investment decision-making, and restore investors’ confidence that they can safely turn to our financial markets to save for retirement and fund other long-term financial goals. That would be good for investors, for capital formation, and for the overall health of our nation’s economy.”

New Policy Enables Consumers to Share Complaints Publicly

Under a new policy recently finalized by the Consumer Financial Protection Bureau (CFPB), consumers who submit a complaint to the CFPB regarding consumer financial products or services will now have the option to share their complaint narrative publicly. Consumer advocates applauded the decision, which they said will vastly expand the value of the agency’s consumer complaint system.

As a result of the policy change, consumers will for the first time be able to learn the details behind the complaints against a company filed with the CFPB.  With access to narratives, consumers will have a new tool to learn more about companies before deciding where to take their business:

• Specifics about what kinds of problems other consumers have been experiencing;
• If there is a troubling pattern of complaints from a particular business or industry, or few complaints about another; and
• Whether the company has a good record of resolving complaints.

“Access to the narratives of complaints helps not only consumers but consumer organizations, researchers, companies and others to better analyze marketplace problems and consider how to address them,” said CFA’s Director Consumer Protection Susan Grant.

“The Bureau created a first-class complaint system in 2012 intended to detect systemic problems while helping to foster solutions for individual consumers,” the groups wrote in a press statement. “The addition of complaint details to the Bureau’s public database turns the complaint system into a highly valuable took for consumer who want to prevent problems and for others who want to identify widespread harmful practices.”

Top Administration Officials, Advocates Address Consumer Assembly

Consumer advocates, policymakers, industry representatives, and members of the media gathered in Washington, D.C. for CFA’s 49^th annual Consumer Assembly March 12-13. The conference featured keynote speeches from: U.S. Department of Labor Secretary Thomas Perez; Federal Trade Commission Chairwoman Edith Ramirez; National Highway Traffic Safety Administration head Mark Rosekind; Marta Tellado, President and CEO of Consumer Reports; Damon Silvers, Director of Policy for AFL-CIO; and Scott Keeter, Director of Survey Research for Pew Research Center.