Fearing Regulation, Financial Industry Group Begins TV Campaign To Convince Public That Government Wants to Make Loans Illegal

I’ve written before about how big financial institutions are doing everything they can to attack the newly created government agency designed to protect consumers, called the “Consumer Financial Protection Bureau” or “CFPB.”  My earlier article can be read here.   In a nutshell, these financial institutions fear that the agency will actually be effective at protecting consumers  from any overreaching and unfair tactics.

An industry group calling itself the “American Action Network” has begun a  television advertisement campaign trying to convince people  to believe the absurd notion that the consumer agency’s  goal is actually to prevent people from getting loans.   The campaign’s first big advertisement  ran recently during a Republican Presidential Debate.   The ad can be viewed on YouTube here.

The ad campaign does not appear to be working, because at the time of this writing, the YouTube video had 97 “thumbs up” and 918 “thumbs down” (full disclosure: One of those thumbs down was mine).

The New York Times recently ran an article concerning this ad campaign.  That article, which was a follow-up to the Times’ series  entitled “Beware The Fine Print” which highlighted the systemic unfairness of forced arbitration, can be found here.  (That article contains links to the articles making up the “Beware The Fine Print” series.)

Here is the New York Times article:

Efforts to Rein In Arbitration Come Under Well-Financed Attack

By Jessica Silver-Greenberg and Michael Corkery – Nov. 15, 2015

A television ad during the Republican presidential debate last Tuesday depicted pale bureaucrats rubber-stamping the word “DENIED” on the files of frustrated Americans, beneath a red banner of Senator Elizabeth Warren evoking a Communist apparatchik.

The ad attacks the Consumer Financial Protection Bureau, a federal agency created with Ms. Warren’s strong backing after the 2008 mortgage crisis. What the ad did not say: Its sponsor wants to rein in the agency in part because of its efforts to restrict arbitration — the widespread practice in corporate America of requiring customers and employees to resolve disputes not in the courts, but in private proceedings with neither judge nor jury. In fact, arbitration is one of the reasons the ad’s sponsor, American Action Network, wanted to blast the agency with the $500,000 campaign, the group said.

The consumer agency’s stance on arbitration, while difficult to convey in a TV spot, “is a perfect example of how government is taking away the power of individuals and handing it to the trial lawyers,” said Mike Shields, president of the American Action Network and a former top aide at the Republican National Committee.

Last week’s ad is one of multiple efforts across the country in recent weeks by both advocates and opponents of arbitration to revisit the much-debated practice, which, in two powerful decisions beginning in 2011, has been affirmed by the United States Supreme Court. The most significant moves came in Washington, where regulators, lawmakers and the Justice Department pushed for new restrictions on arbitration.

At the same time, the U.S. Chamber of Commerce, the most powerful business lobby in the country, started a new effort to block the Consumer Financial Protection Bureau by lobbying lawmakers to attach a rider to the federal budget bill that would force the regulator to conduct a new study before issuing any rule, according to people with direct knowledge of the strategy.

“If the Chamber of Commerce thinks they are going to slip a provision into a spending bill that cuts off consumer rights without a fight, they are very much mistaken,” Senator Warren said.

Matt Webb, a senior vice president of the chamber’s Institute for Legal Reform, called the bureau’s work “deeply flawed and incomplete.”

The flurry of activity follows the publication by The New York Times of a three-part series showing how corporations across the spectrum of the American economy — phone companies, credit card providers, nursing homes — use mandatory arbitration to circumvent the court system and derail legal claims alleging predatory lending, wage theft, discrimination and other violations. The reporting detailed how arbitration proceedings tend to favor businesses over individuals. In some instances, arbitration clauses require disputes to be settled in Christian arbitration, a process governed by the Bible rather than state or federal law.

Proponents of arbitration, who say it provides an efficient alternative to courts, view the Consumer Financial Protection Bureau as among its biggest threats. They say a new rule proposed by the consumer agency, which would prevent financial services companies from including class-action bans in consumer contracts, could in effect kill arbitration altogether.

On Wednesday, the Justice Department issued a proposal to protect military service members from arbitration requirements. Earlier this month, Senator Al Franken, Democrat of Minnesota and a longtime opponent of arbitration, renewed his push for Congress to pass a bill he introduced this year that would prevent companies from requiring employees to go to arbitration.

Several Democrats are expected to introduce bills intended to more widely curtail the use of arbitration clauses, according to the people who knew of the strategy. But with Congress deeply divided, some Democrats are calling on President Obama to use his executive authority to prevent federal contractors from including arbitration clauses in their contracts with customers and employees.

San Francisco’s city attorney, Dennis Herrera, sued American Express this month over what he claimed were “illegal and anti-competitive rules, policies and practices.” The lawsuit, filed in Superior Court, will probably help small businesses whose contracts with the credit card company prevented them from filing a class-action lawsuit.

Marina H. Norville, a spokeswoman for American Express, said, “We don’t believe the suit has merit,” adding that the company planned to “vigorously” defend itself against it.

In Chicago, Alderman Edward M. Burke said he planned to introduce a bill this week that would prevent the city from doing business with companies that push employees and customers out of court. “It’s a way to get at a practice that is destroying a core American principle,” he said in an interview.

Arbitration has remained largely untouchable because of a pair of Supreme Court rulings in 2011 and 2013 that cleared the way for the use of class-action bans in contracts. With the current Supreme Court’s having now twice enshrined the wide use of arbitration, many opponents have pinned their hopes on the consumer agency’s proposed rule.

When the agency was created five years ago as part of the Dodd-Frank Act — the federal law overhauling the financial industry — it was given authority to study and create rules to address arbitration. The agency’s research shows, among other things, that businesses have tended to get bigger awards than consumers in arbitration.

In 2010 and 2011, businesses won arbitration claims against consumers totaling $2.8 million, the findings showed, compared with awards to consumers totaling less than $400,000. The agency’s findings formed the basis for its proposed rule, which was released in draft form last month.

The U.S. Chamber of Commerce and others have said the agency’s findings do not support its proposed rules. “By ignoring its own data that clearly shows major deficiencies with court-based litigation and disregards the real-world advantages of arbitration, the C.F.P.B. has demonstrated its bias for trial lawyers over average Americans,” Mr. Webb, of the chamber’s Institute for Legal Reform, said.

Considerable sums of money are at stake. Late last month, the bond-rating firm Moody’s Investors Service warned that if enacted, the bureau’s proposed rule might leave companies more vulnerable to class actions that could “force changes to company practices that cut into revenues” or “draw regulatory scrutiny.”

One reason arbitration advocates consider the bureau a significant threat is that it is empowered to issue rules without legislative approval, making them more difficult to defeat. Furthermore, unlike the Securities and Exchange Commission, which is overseen by a bipartisan commission, the consumer agency has a single head, appointed by the president.

At a legal summit hosted by the Chamber of Commerce late last month in Washington, participants spoke out forcefully against the consumer agency and its proposed arbitration rule. As attendees waited for one session to begin, Darth Vader’s theme song played on the sound system.

In his keynote speech on the virtues of free markets, John Stossel of the Fox Business Network lobbed a breast implant into the audience while discussing what he said was abusive litigation including lawsuits that involved claims of faulty implants. Mr. Stossel did not mention arbitration, but the subject came up during a session called Regulators Gone Rogue, in which a panelist cited the Consumer Financial Protection Bureau’s arbitration rule as an example of overreaching government oversight.

A chamber executive, introducing the panel, likened the chamber’s fight against regulations to the rebels’ revolt in the “Star Wars” movies. “Perhaps it is the real reason that Luke, Han, Leia and Chewie fought back against the evil empire,” he said.