Life, Liberty and the Pursuit of Class Actions
So goes the clarion call from our good friends at the CFPB. With its latest proposal it has clearly drunk the Kool aide of the most fervent supporters of the plaintiff’s bar. The Bureau is out to protect the class action lawsuit from extinction.
Specifically, it has outlined a proposal to prohibit contracts for the purchase of consumer goods and services overseen by the CFPB, such as bank accounts and credit cards, from mandating that consumers agree to arbitration clauses banning their participation in class action lawsuits. The inclusion of these bans has become common in account and credit card agreements, particularly those of larger banks. If this proposal is translated into a regulation you will have to be sure that you don’t prevent your members from banning together to sue you over the most technical and harmless of violations. Remember, at least for the time being, the CFPB is simply out to ensure that consumers can bring class action lawsuits; you could still mandate arbitration for individual claims.
Dodd-Frank gave the CFPB the right to examine the use of arbitration clauses and it has warmed to the task with the gusto of Ralph Nader on steroids. In a report on the proposal it released last Wednesday it explained that:
“The proposals under consideration would give consumers their day in court to hold companies accountable for wrongdoing. Often the harm to an individual consumer may be too small to make it practical to pursue litigation, even where the overall harm to consumers is significant. Previous CFPB survey results reported that only around 2 percent of consumers surveyed would consult an attorney to pursue an individual lawsuit as a means of resolving a small-dollar dispute.”
Theoretically, the CFPB’s argument makes sense. Sometimes the only way for legal damages to truly reflect the harm caused by a bad actor is to aggregate the damages. In addition, the fear of class actions helps incentivize compliance.
Now for reality. In your typical consumer class action your member will never have a day in court in any meaningful sense. He will receive a notification in the mail informing him of a lawsuit. He may actually be able to collect pocket change, as compensation for a wrong he didn’t know had been committed against him. Meanwhile an attorney he never met gets his compensation based on the size of the aggregate judgement.
Credit unions have had the unfortunate experience of being confronted by a class action system run amuck. How many members were truly harmed by the failure of some banks and credit unions to post ATM fee signs next to terminals? Let the heavens fall so that justice be done!
The CFPB grudgingly acknowledges in the report that “class lawsuits have been subject to significant criticism that regards them as an imperfect tool that can be expensive and cumbersome for all parties. However, the Bureau notes that Congress, state legislatures, and the courts have mechanisms for managing and improving class procedures over time. On balance, the Bureau believes that consumers are significantly better protected from harm by consumer financial service providers when they are able to aggregate claims.”
What intrigues me even more about the CFPB’s proposal is that it is coming out just as the Supreme Court is considering a case involving arbitration and class action lawsuits. One of the first cases the Court heard in its new term is DIRECTV, Inc. v. Imburgia in which it is being asked to overturn a California state Court decision refusing to enforce a clause in DIRECTV’s standard contract banning class actions. (Imburgia v. DIRECTV, Inc., 225 Cal. App. 4th 338, 340, 170 Cal. Rptr. 3d 190, 192 (2014)). By the way, the Supreme Court has already upheld the legality of class action arbitration bans in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011). The CFPB is out to effectively reverse this decision.