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The Senate's recent vote to let forced-arbitration language remain in consumer contracts with banks and other financial institutions means that consumers will continue to have limited legal options when they believe they've been harmed by companies like Wells Fargo and Equifax.
Now, as before, consumers with complaints about financial companies will in most cases be forced to settle the dispute in arbitration, an out-of-court procedure that often favors deep-pocketed companies and usually can’t be appealed.
With Vice President Mike Pence casting the tie-breaking vote, the Senate voted 51 to 50 to eliminate a rule, finalized in July by the Consumer Financial Protection Bureau, that would have made it easier for consumers to join class-action lawsuits to fight alleged misconduct by financial institutions. Under the Congressional Review Act, lawmakers can vacate government agency regulations 60 legislative days after their introduction. The House already voted against the rule, so it is effectively dead. It would have gone into full effect in 2018.
Consumers Union, the policy and mobilization division of Consumer Reports, had strenuously supported the CFPB's rule to give consumers the option to join in class actions against financial institutions.
“The vote means that big financial companies can lock the courthouse doors," says George Slover, senior policy counsel for Consumers Union. “The CFPB’s rule was a carefully crafted response to the increasingly prevalent use of forced-arbitration clauses, which require consumers to give up their legal rights just to get a loan or some other financial service."
Ted Frank, director of the Center for Class Action Fairness at the Competitive Enterprise Institute in Washington, D.C., has a different take. "By voting down the Consumer Financial Protection Bureau’s anti-arbitration rule," he says, "the Senate prevented a cash grab that would have transferred wealth from consumers to the pockets of wealthy attorneys."
But there are ways to make arbitration work for you. The key is understanding how the system functions and how you can use it to your advantage against a financial-service provider.
What to Do First
Before you consider arbitration, there are free and easy steps to take that might help you settle a dispute with a financial provider.
Complain to the CFPB. Register your complaint in the CFPB’s free Consumer Complaint Database or call 855-411-2372. You fill in a form and a CFPB representative transmits your concern to the company.
You’ll usually get a response from the company within 15 days, the bureau says. The CFPB has returned millions of dollars in relief to consumers in the past five years through database complaints.
There’s one drawback: Any decision is final. There’s no way to appeal through the CFPB’s complaint process if you’re unhappy with the company’s response, a spokesman told us.
Report the problem to the Better Business Bureau. Find out where the company is headquartered, then register your complaint with the BBB’s office there. BBB representatives will follow up to help resolve the problem or at least to get a response from the company. You can usually expect one within 35 days of your original complaint.
Next Step: Consult a Consumer Attorney
If the free methods don’t work, consult with a consumer attorney to see whether your case is worth going to arbitration.
“To do arbitration, you really need to have at least a couple hundred dollars worth of damages,” says Stacy Bardo, a consumer attorney based in Chicago.
You can find an attorney through the National Association of Consumer Advocates. You may want to call more than one to find out his or her specialty.
Dan Blinn, principal at the Consumer Law Group in Rocky Hill, Conn., for instance, concentrates on disputes between consumers and auto dealers about fraud and other conflicts related to auto financing. “There aren’t a lot of lawyers who handle these cases,” he notes.
Blinn says he doesn’t charge a fee for a client’s first visit. But he warns that not every case is worth his time. The best involve violations of laws that allow for fee-shifting—that is, the company you’re up against must pay reasonable fees to your attorney if it loses in arbitration.
Blinn says he steers clear of cases involving credit card or mobile-phone overcharges.
“Usually there are very small amounts involved, $20 or less,” he explains. “If you have a million people charged $5, that’s a $5 million case in class action. But to go into arbitration to recover that $5 for one person isn’t worthwhile for the consumer or the lawyers.”
You could also try to file a personal lawsuit. But that can be difficult, too. “If there’s a binding-arbitration clause and any party to the contract says they want to arbitrate, the court is required to do it,” Blinn says.
In some cases the company may agree to settle.
“That can happen if the defendant doesn’t want to pay the arbitration fees,” Blinn notes. “Sometimes when there’s an insurance-funded defense, the insurance company will prefer you go to court. Insurance companies don’t like arbitration because you can’t appeal. And arbitrators can make mistakes.”
If a lawyer won’t take your case, you can pursue other options, some of which may lead to getting your money back. In other instances, you may merely get the satisfaction of knowing you’ve shamed a company or forewarned other consumers of its faults.
• Go to small-claims court. Usually you can sue only for monetary damages, but in some cases you can be awarded damages for emotional distress and inconvenience as well. The cost to file a suit varies by jurisdiction. In Connecticut, for instance, it's $95. The court considers cases valued up to $5,000.
• Report the problem to your state attorney general. Most AG offices have consumer-fraud divisions. “I’ve seen a few instances where state attorneys general will help individual consumers with cases,” says Paul Bland, executive director of Public Justice, a not-for-profit consumer advocacy organization. “Most state AGs have very limited staff, but this is a smart thing to try.”
Typically, though, the state attorney general’s office won’t pursue your particular situation. Instead, it will add your complaint to their databases of complaints against a particular company or industry for the public to review. States also pursue legal actions against financial companies when enough consumers complain.
• Complain to a state regulator. Banking, insurance, and other state regulators may have consumer divisions to address your concern.
• Go public. Posting and commenting on Twitter, Facebook, YouTube, Reddit, and other social media channels are another way to shame companies and sometimes create change. If your local television news station has a consumer reporter, he or she may investigate and help you get a resolution. You also can submit a tip on the home page of Consumerist, Consumer Reports' sister website; editors may follow up. Remember not to post account numbers or give out personal information.
Bardo notes that going these routes probably won't result in your getting an economic windfall. “But eventually, if there’s enough pressure, the company may take action," she says.
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2017, Consumer Reports, Inc.