Attorney General Jeff Landry recently joined Equifax and a who’s who of Wall Street lobbyists in attacking a rule from the Consumer Financial Protection Bureau, the watchdog agency, addressing forced arbitration clauses buried in the fine print of financial service contracts. These clauses prevent people from banding together to have their day in court and remove a customer's constitutional right to a trial by jury; instead, people have to go one-by-one to a secretive and biased arbitration hearing before an arbitrator companies like Equifax and Wells Fargo help select.
Among Landry’s arguments is that consumers win $5,389 on average in arbitration but only $32 in class actions, and he would hate to see consumers lose the arbitration option. It would be a compelling argument, if it were based in reality.
There are two big flaws to the AG’s arguments. First, that $5,389 “average” is for the paltry 16 people per year in the entire country who win cash awards in arbitration. Most lose, and end up owing the bank or lender on average $7,725. In contrast, over five years, 34 million consumers won $2.2 billion in class actions, after attorneys’ fees. Class actions are also an efficient way to handle small disputes; people only take the time and expense to arbitrate individual claims when they have a lot of money at stake.
Second, the CFPB’s rule does not mandate that consumers go to trial and it does not remove the option of arbitration. Companies can still offer arbitration, they can even encourage it, but they can't force it. So when Equifax jeopardizes the data of 143 million people, the company can’t force you to go it alone in arbitration if you prefer to be part of a class action.
The CFPB conducted a multi-year study of the impacts and results of individual arbitrations and concluded that when banks and other corporations deprive people of access to the courts, almost no one gets relief in arbitration.
Forced arbitration denies our constitutional rights and protects the profits of Wall Street investors. As Louisiana’s chief legal officer, Landry should not support a legal maneuver that strips Louisianans of their rights.
As Landry suggested in a recent letter, calling your senator is an excellent idea, but you should demand our senators support the CFPB’s rule to restore your constitutional rights, not infringe upon them.
professor, LSU Law School