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| Source: https://www.nytimes.com/2019/04/16/magazine/consumer-financial-protection-bureau-trump.html |
Between 2002 and 2015, in an effort to boost profits, Wells Fargo opened 3.5 million fake bank and credit card accounts for clients without telling them. One of those millions was Tracy Kilgore. Tracy didn’t personally bank with Wells Fargo, so she was puzzled when she got a letter stating that her credit card application for them had been denied. She had been there two weeks prior as treasurer for a local group that she volunteered for. The following day, a credit card was applied for in her name without her knowledge. The rejected application was then listed on her credit report. She called Wells Fargo for months trying to get them to remove it but kept being told it would just take another week or so. It eventually came out that workers were under tremendous pressure to meet sales quotas and over 5,000 workers were fired across the country for opening the fake accounts.
When it came to seeking legal action against Wells Fargo, Kilgore found out what millions of consumers find out every day. Due to their forced arbitration clause in their contract, you can’t.
Forced arbitration is where a company requires a consumer or an employer to submit complaints and disputes to arbitrators, not courts. When you click “I agree” or sign off on those pages and pages of print when signing a contract for a job, buying insurance, or taking out a car loan, often buried in that print is the signed arbitration clause. By agreeing, you waive your right to sue, to participate in a class action lawsuit, or to appeal any decision the arbitrator may issue. Forced arbitration is mandatory, the decision the arbitrator makes is final, and the results, and often the processes, are not public. In addition to the above cases, this also occurs when signing off to have a home built, opening retirement and investment accounts, and entering nursing facilities.
In arbitration, the two sides present their cases to an arbitrator or a panel of arbitrators. The arbitrator decides the rules, weighs the arguments, and then decides the dispute. By staying out of court and preventing consumers or employees to band together in class action suits, this gives companies the advantage and helps them to avoid accountability. Arbitration costs less for companies, but typically quite a bit more for consumers. Proponents of arbitration argue that arbitration benefits the consumer more than class action as the average payout to the consumer in arbitration is over $5,000 whereas the average payout for consumer in class action is only $32. However, this is incredibly misleading because arbitrators only decide in favor of consumers in 9% of cases. The rest of the time, the arbitrator finds in favor of the company. Because consumers so rarely win, and arbitration is costly, the average consumer actually ends up paying $7,725 on average to the financial institution that wronged them in the first place.
Now, this is one of those issues (and there are a lot of them) where it really matters who is in power in government. Because, returning to the Wells Fargo scandal, it was ultimately pressure from Congress that got the CEO of Wells Fargo to agree to not enforce the binding arbitration clause in their contracts leading to class action lawsuits.
And, speaking of credit cards, did you know that in 2018, Americans paid $113 billion in credit card interest alone? Current average credit card APR is 17.2%, it’s lowest since June of 2018. The average APR on store-only credit cards is 27.52%. For some stores, credit card interest makes up over a third of total revenue. While consumers have over $1 trillion dollars in outstanding credit card debt and an average balance of $6,000, banks made a record $236.7 billion in profits last year. While banks would have done well without the 2018 Trump Tax Cut, the GOP bill tacked on an additional $28.8 billion to their profits. In the fourth quarter of 2018 alone, more than half of the increase in the net income for banks came from the tax bill.
63 million Americans lack access to basic financial services such as checking and savings accounts. This disproportionately affects African American (at almost half) and Latino families (at 40%). As discussed in Affordable Housing post, people of color often experience discrimination in lending in mortgages. This is also true of credit cards and auto loans.
Presidential Plans (If this is a stand alone issue for a candidate, I have linked their entire plan to their name):
Joe Biden: Biden’s history on consumer protections and fair banking is mixed. As a senator, he was sometimes seen as too close to credit card companies. In 2005, as a Senator, Biden supported a bankruptcy bill that made it more difficult for individuals to file for bankruptcy to get out of debt. However, as vice president, he led the Middle Class Task Force which was dedicated to consumer protection issues. It was under the Obama Administration that the Consumer Financial Protection Bureau was created, which Biden was obviously a part of, and that Congress passed legislation requiring clearer monthly statements, protections against retroactive rate increases, and limiting fees companies can charge on debit card purchases.
Cory Booker: Booker wants banks to stop charging so many overdraft fees. As Senator, he has urged the Consumer Financial Protection Bureau to bring transparency to small business lending by identifying barriers that prevent women and minorities from starting small businesses. He believes consumers have the right to be treated with dignity and respect and that predatory and harmful debt collection tactics are unacceptable.
Pete Buttigieg: Buttigieg will overhaul the Federal Arbitration Act which he says “stacks the deck against consumers and workers. He will also pass strict regulations on predatory lenders, strengthen antitrust standards, revive the Consumer Financial Protection Bureau’s authority, and fight big data discrimination.
Amy Klobuchar: In Klobuchar’s 1st 100 days, Klobuchar will prosecute payday lenders that engage in predatory practices and charge exorbitant interest rates. She will direct the Department of Commerce, Consumer Financial Protection Bureau, Federal Trade Commission, Consumer Product Safety Commission, Federal Communications Commission, and Department of Transportation to re-evaluate any Trump Administration actions that weakened consumer protections.
Bernie Sanders: Sanders will cap all credit card interest rates at 15% and allow states to go even further. He will allow every post office to provide basic and affordable banking services and seek to end lending discrimination.
Tom Steyer: Steyer and his wife created Beneficial State Bank as an alternative to big financial institutions. The profits from the bank are reinvested into the community and used to promote the public good such as affordable housing, clean and renewable energy, spaces for art, education, nonprofit organizations, minority businesses, and businesses owned by workers. There are currently 17 local branches throughout California, Oregon, and Wisconsin. He says he will restore the Consumer FInancial Protection Bureau to ensure the interests of consumers and borrowers come first.
Donald Trump: Trump has proposed cutting the budget of the CFPB and restricting its powers. Trump has delayed key regulations designed to protect consumers and imposed fewer penalties against financial institutions and corporations than his predecessors. Consumer Financial Protections Bureau enforcement actions dropped from 3 to 5 per month to zero under the Trump administration. Former director of the CFPB, Mick Mulvaney (who went on to be Trump’s acting Chief of Staff), said “We are not going to bend over backward to try to come up with creative ways to sue people just because we have the authority to do that.” Trump’s Labor Department has delayed a rule requiring financial advisors to act in their clients’ best interests. Trump’s Department of Education withdrew a rule that strengthened protections for student borrowers and delayed payment for borrowers defrauded by for profit colleges.
Elizabeth Warren: As stated earlier, Elizabeth Warren is responsible for the proposing of the creation of the Consumer Financial Protection Bureau. It was her baby from her time as a Harvard law professor.
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