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Wednesday, October 25, 2017

Congress Lets Banks Screw Their Customers: Forbids Lawsuits to Correct Problems

Yes, readers, it’s happened again.  Yesterday the Republicans, by a 51-50 vote in the Senate (Vice President Pence cast the tie-breaking vote) and by an overwhelming majority in the House, have forbidden consumers to exercise their usual right to go to court when banks engage in outrageous practices.  Our President is sure to sign the law when it reaches his desk;  

Banks love this.  Now when the banks come up with new ways to screw customers, the customers will remain screwed, with no legal redress of any kind.  Perhaps state attorneys general will take action against the banks (ho, ho, ho, given that most states have Republican administrations that are very bank-oriented) or perhaps state and federal bank regulators will do so (another ho, ho, ho, since in a Trumpian world Republicans are mostly in charge of those entities too).

Let me give you an example of the sort of evil banks do that should upset you.

Say you have $1000 in your bank account and this month you have made ten transactions out of the account: nine debit withdrawals of $30 each ($270 total) and then, on the last day of the month a check for $1000, thus overdrawing the account, though the bank pays it anyway. The agreed-upon fee for any overdraft of the account is $50 per transaction. You’d think this would mean that the bank would hit you with one $50 overdraft fee, right?  Ah, no.  Most banks engage in a practice of paying “high to low,” meaning that when posting items against the balance they pay the largest one first (the big check) and then create supposed overdrafts with all the little ones. Thus the bank charges you with $450 in overdraft fees for nine transactions that supposedly overdrew the account.  Banks love this sort of math because the amount they make annually from overdraft fees is huge.  Their overdraft profit in 2016 is now estimated at $15 billion---that’s right, billion; see!

Outraged at this amount, you complain to the bank that both common sense and decency mandate you shouldn’t have to pay more than $50 for your one mistake, but the bank points to a clause in the fine print of the agreement you signed with them that allows them to pay overdrafts “high to low” in computing overdraft fees.  You say that this is just wrong and the banks are taking unconscionable advantage of their customers by this sneaky trick.  You threaten a class action lawsuit against the bank of behalf of all their customers injured by the practice, but the bank chuckles and points out another clause in the contract that forbids group lawsuits completely.  What?  Oh, yes.  There’s a clause stating that in the event of any dispute with the bank the consumer will not sue in the courts (no judge, no jury) but will instead resort to mandatory arbitration.  In such a procedure an arbitrator, appointed from a panel of arbitrators and selected by the bank, hears the arguments of both parties (you and the bank) and then decides the matter.  The loser typically pays the fees of the winner (though many banks waive this requirement when consumers bring the arbitration).  Hmm.  Well, it’s not worth hiring a lawyer and arbitrating over $450—it would likely cost you much more than that in attorneys fees, which are not recoverable in the arbitration even if you win.  Oh, but wait!  You could bring a class action arbitration and that way recover a huge amount, making it worthwhile.  “No, no, no,” the bank replies, pointing to the contract which clearly forbids class action arbitration.  You can only arbitrate your particular dispute.

So what do you do?  Well, you can bitch, you can scream at the unfairness of it all, but in the end you will pay the $450.  The banks chuckle and don’t mention that there are a lot of other unfair clauses in their contract with you, all of them are protected by the mandatory arbitration clause that forbids both going to a real court and also blocks class actions of any kind. 

One other thing: studies show that if an arbitrator rules in favor of consumers in a mandatory arbitration, he/she is unlikely to be selected as an arbitrator in future disputes. 

Richard Cordray
During the early days of the Obama administration, then Harvard Professor Elizabeth Warren (an old friend of mine, by the by—see­­­­) proposed the creation of what became the Consumer Financial Protection Bureau (CFPB), which would have power to protect consumers from misbehavior by financial institutions by passing regulations and bringing enforcement actions.  Since the creation of the CFPB it has returned over $11.9 billion to 29+ million consumers and stopped many outrageous practices.  Most recently it passed a rule that would forbid the use of mandatory arbitration clauses like the one described above.  This summer The New York Times printed an opinion column written by the director of the CFPB, Richard Cordray, saying that the bureau “found that group lawsuits get more money back to more people.  In five years of group lawsuits, we tallied an average of $220 million paid to 6.8 million consumers per year.  Yet in arbitration cases we studied, on average 16 people per year recovered less than $100,000 total.”

Bankers howled at the new CFPB rule forbidding mandatory arbitration clauses.  It would force the banks to defend many lawsuits and spend lots of money, they argued.  Lawyers will get rich, but the poor banks will have to pass their losses on to their customers! 

Congress to the rescue.  The new law overturns the CFPB rule and restores the status quo.  Banks can still put whatever clauses they like in bank contracts and if consumers sign them, well, ignorance has its price, right?  That might be fair if almost all banks didn’t present uniformly ugly contracts to their customers, contracts filled with unconscionable clause after unconscionable clause, all phrased in language the consumer will likely neither read nor understand if noticed.  Someone once said it’s like sticking your head into the lion’s mouth and hoping it’s a friendly lion.

The argument that forbidding class actions only enriches lawyers and will impoverish the banks is also wrong.  As Cordray stated above, consumers get big money from these suits.  It’s true that the lawyers also get paid, but the lawyers earned that pay.  If the they lose the class action lawsuit they get nothing and have wasted a lot of time and money.  If banks want to avoid losing such suits or, better yet, not have them filed at all, their remedy is simple: cut the crap out the contracts and play fair with their customers.  Customers only win lawsuits when the banks have done something outrageous.  Stop doing outrageous things and the problem solves itself.

Ah, well, happily for the banks they needn’t change their contracts at all.  What Congress has done is to encourage even more shenanigans hidden in fine print (Elizabeth Warren calls it “mice print”).  With mandatory arbitration clauses still in force, the sky’s still the limit!  By the way, every time you go on the internet and buy something and click on an “I Agree” icon, the “Terms” you have just agreed to will almost always have a mandatory arbitration clause hidden somewhere in there.

Oh, one other thing!  The Republicans (from Trump down to almost every one of them in both houses of Congress) are in favor of eliminating the Consumer Financial Protection Bureau or at least drastically cutting back its abilities to do anything meaningful. 

Watch for it!  That’s the next step in this ugly saga.

[Addendum:  On November 1, 2017, President Trump, as predicted, signed the bill overturning the CFPB's rule forbidding mandatory arbitration, to the delight of the chiefs of the Consumer Bankers Association (CBA), Independent Community Bankers of America (ICBA), National Association of Federally-Insured Credit Unions and several other groups attending the signing.  Richard Hunt, CBA president and CEO, said the arbitration rule “was about protecting trial lawyers and their wallets,” praising Trump and Congress for ensuring “consumers have the necessary tools to receive relief without going through drawn-out class action proceedings.”]

Related Posts:

“A Guide to the Best of My Blog,” April 29, 2013;

“How To Write an Effective Legal Threat Letter,” October 19, 2011;

“How To Respond to a Legal Threat.” March 29, 2014;

“Clicking on 'I Agree': Sticking Your Head in the Lion's Mouth?” September 27, 2014;

Friday, October 20, 2017

What Did the Lions Eat on Noah’s Ark?

Noah had no idea how old he really was but since he was certainly the oldest person he knew it sometimes seemed like he must be six hundred, so that’s what he claimed as his age.  Eventually he’d really come to believe that number.  It’s what he told his eventual biographer.

When the bad dreams started coming, the ones about God Almighty destroying the world with a great flood and construction of a great ark, he didn’t want to believe it at first, but God in those dreams was very angry and very insistent, so Noah, terrified, had done what he was told.  The dreams contained detailed instructions, hazily remembered as most dreams are, and he’d had to fill in the blanks creatively.  But now, amazingly, the ark was more or less built—it had taken forever to figure out what a “cubit” was—and things seemed to be progressing better than expected.  That was good because the weather was changing and ominous clouds presaged ugly storms approaching like troopers. 

But this morning Noah was startled by a deputation of family members, come to him in a body, obviously bearing a prepared message.  Seth, his oldest, was the leader, but his other sons, Ham and Japheth, were at his side, and their wives and the oldest of the children made up the rest of the pack.

Seth spoke.  “Dad, we’ve been talking and I’m afraid we have to face the fact that this whole venture is a failure.  It’s time to admit that while we tried, we should throw it all up and go back to working the farm while there’s still time to get in a harvest.”

Noah was astounded.  The family had never questioned him before—well, okay, they’d made sure he was sober when he first described the whole venture, but then his descriptions of God’s wrath and the coming deluge had set them to working like a dedicated ant colony.

In a voice that betrayed nothing of his advanced age, Noah thundered, “WHAT DO YOU MEAN?”

Seth, stepping back slightly but determined to explain, persevered.  “We just can’t make this ark thing work!  Sure, we went out and gathered all the animals we could capture, but lots of others we simply couldn’t find, and the ones that we did corral aren’t all of childbearing age.  We’re supposed to have seven couples of clean animals and two couples of unclean animals, and, well, we just don’t have anything like those numbers.”

Noah pointed at the temporary zoo area where the animals were housed.  ‘THERE THEY ARE!”

Ham jumped in.  ‘No, Dad, they’re not!  Sure, yeah, we’ve got enough of the domestic animals, but the wild ones . . . not a chance!  Take the giraffes.  They’re a clean animal so we should have seven pairs, fourteen in all.  But have you ever captured and then herded fourteen giraffes?  And dragged them back here all the way from Africa?  Well what we have left is seven of them, not fourteen, and those seven consist of six males and one female.  Nobody in the giraffe pen is a happy camper.”

Seth added, “And there are so many species we don’t have any of, much less the required number.  What will God think about that?”

Noah paused, considering.  Hmm.  “Well . . . well, God will provide . . . I suppose.  Don’t worry, guys.  Species go extinct all the time.  Let’s just forget about the dinosaurs, okay?  Ugh!  Who needs them?”

“Fine,” ventured Japheth, “but what about food?  Right now we’re having trouble feeding our menagerie, and once we’ve packed everybody into the ark things will be ten times worse.  We simply don’t have room for the provisions we’ll need if we’re stuck on board for more than a day or two.  After that the animals will have to be fed to one another, defeating the whole purpose.”

“Start with the lions,” Ham ventured.  “They eat lots of meat, and that meat consists of the other passengers, including us if other sources dry up.  It’s the same with all the carnivores.”

“God will provide,” Noah mumbled again, eyes closed, trying not think about it.

“Not good enough, Father Noah,” insisted one of the wives, the one with the big mouth.  “We need answers before we climb onto that floating leaky shack!”

Hey!” ejaculated Ham, proud of his prowess as a carpenter.  “None of us know how to steer it, but I’m damned sure it won’t sink . . . as long as we don’t hit a mountain or anything.”

Seth jumped back into the fray with, “And, Dad, even if we make it through this big storm you say is coming and offload the animals, what then?  How could they all possibly thrive?”

“What do you mean,” asked Noah, sick of these questions.

“Well, for example, what will the lions eat on their first day free?  And the other carnivores?  Whole species will be gobbled up before they can propagate!”

Noah raised his hands.  “Stop, stop!  Enough thinking!  GOD WILL PROVIDE, I told you.  No more questions!”

As if on cue came a tremendous thunderclap and rain began pouring.  Everyone scrambled and frantically began loading animals onto the ark, which swayed dramatically in a rising wind.

The first few days on the ark, bobbing and swinging in circles during the storm, were chaotic and it was all the small crew could do to keep the whole shebang afloat.  On the third day feeding the carnivores achieved a temporary fix when the tigers somehow got into the unicorn pen, slaughtering all the inhabitants but leaving a pile of meat that lasted for a short period.

In the end the meat problem solved itself.  Hundreds of corpses banged up against the ark and were easily hauled aboard.  It was messy and awful cutting up bodies, but that problem was solved by culling the ample floating mass for babies and small children, which were then dumped whole into the relevant carnivore pens.

It was horrible work which they all hated, but, as Noah reminded his little band, “God will provide.” 


Chapter 6

5 And God saw that the wickedness of man was great in the earth, and that every imagination of the thoughts of his heart was only evil continually.
6 And it repented the Lord that he had made man on the earth, and it grieved him at his heart.
7 And the Lord said, I will destroy man whom I have created from the face of the earth; both man, and beast, and the creeping thing, and the fowls of the air; for it repenteth me that I have made them.
8 But Noah found grace in the eyes of the Lord. . . .
13 And God said unto Noah, The end of all flesh is come before me; for the earth is filled with violence through them; and, behold, I will destroy them with the earth.
14 Make thee an ark of gopher wood; rooms shalt thou make in the ark, and shalt pitch it within and without with pitch.
15 And this is the fashion which thou shalt make it of: The length of the ark shall be three hundred cubits, the breadth of it fifty cubits, and the height of it thirty cubits.
16 A window shalt thou make to the ark, and in a cubit shalt thou finish it above; and the door of the ark shalt thou set in the side thereof; with lower, second, and third stories shalt thou make it.
17 And, behold, I, even I, do bring a flood of waters upon the earth, to destroy all flesh, wherein is the breath of life, from under heaven; and every thing that is in the earth shall die.
18 But with thee will I establish my covenant; and thou shalt come into the ark, thou, and thy sons, and thy wife, and thy sons' wives with thee.

Chapter 7
. . .
2 Of every clean beast thou shalt take to thee by sevens, the male and his female: and of beasts that are not clean by two, the male and his female.
3 Of fowls also of the air by sevens, the male and the female; to keep seed alive upon the face of all the earth. . . .
5 And Noah did according unto all that the Lord commanded him.

17 And the flood was forty days upon the earth; and the waters increased, and bare up the ark, and it was lift up above the earth.
18 And the waters prevailed, and were increased greatly upon the earth; and the ark went upon the face of the waters.
19 And the waters prevailed exceedingly upon the earth; and all the high hills, that were under the whole heaven, were covered.
20 Fifteen cubits upward did the waters prevail; and the mountains were covered.
21 And all flesh died that moved upon the earth, both of fowl, and of cattle, and of beast, and of every creeping thing that creepeth upon the earth, and every man:
22 All in whose nostrils was the breath of life, of all that was in the dry land, died.

Noah's Ark as recreated in Kentucky

Related Posts:

“A Guide to the Best of My Blog,” April 29, 2013;

“Creating the Bible: Water Into Wine,” April 7, 2013;

“Pious Ejaculations and the Flying Spaghetti Monster,” May 30, 2107,