The recent debacle involving the corporately sanctioned illegal churning of consumer bank accounts by Wells Fargo reminds us of how difficult it is for consumers to access reliably ethical banking services. With easy access to the kinds of information most of us work hard to keep private, like social security numbers, Wells Fargo and its employees violated the relationship that is supposed to be created between the bank and its customers when we entrust them with our money and our information.
The scandal also shows how recent legislative and judicial developments make it virtually impossible for consumers to fight back through the judicial system. Those challenges are even greater for poor and working-class consumers, who often can’t afford the ordinary fees charged by major banks, much less the cost of hiring an attorney to fight back if they are mistreated. Banks like Wells Fargo almost never face criminal prosecution or lawsuits over their actions. If my neighbor walked into Wells Fargo and opened a credit card account in my name, and if I found out about it, he would probably be arrested and criminally charged. Both Wells Fargo and I would also likely sue him. Yet Wells Fargo did just that, and despite recent hearings in which members of Congress grilled CEO John Stumpf, the bank probably won’t face any serious legal consequences.
While at least one federal prosecutor has opened an investigation, the Washington Post reports on how difficult it will be to make a case stick against the executives of the bank who clearly orchestrated the scam. Bringing a civil case against Wells Fargo would be even more challenging. Wells Fargo, like almost every financial institution in the country, includes in its customer contracts draconian and comprehensive arbitration clauses and class action waivers that have become standard procedure in consumer contracts ever since the U.S. Supreme Court upheld their use in ATT v. Conception in 2011. As a result, Wells Fargo customers who have been victimized have been prevented by courts from banding together to bring their relatively small individual claims by way of class action. Instead, they forced to have their claims heard not by a jury of their peers but by an arbitrator chosen by rules of Wells Fargo’s design – and that can be expensive.
These challenges combined with a culture of exploitative fees and business practices by banks are among the reasons why, as of 2014, 17 million Americans, mostly working class and poor were unbanked — they do not have bank accounts at all. They rely on payday lenders, title loan providers, or check cashing stores for their banking needs, and they pay more for such services. They also face the same problematic contracts that make it so hard for bank customers to seek justice, but in the case of payday lenders, those obstacles are linked with openly and intentionally exploitative business practices. Angry as we may be about the Wells Fargo story, this systematic exploitation and disenfranchisement of the poor and working class should make us even more furious.
Surely better regulations could protect these vulnerable consumers, right? In Ohio, we tried to do just that. During my tenure as Ohio’s Attorney General, I conducted hearings across the state that gave payday lending victims the opportunity to tell their stories. They talked about how they had been driven to financial ruin, lost homes, cars, jobs, and sadly, hope for the future. Their testimony was so shocking and heart-rending that the General Assembly passed and Ohio voters affirmed a law that capped the interest rates payday lenders could charge. Yet once again the vultures who own and operate the industry, protected by class action waivers and arbitration clauses and assisted by their lawyers and lobbyists, found a loophole in the law that enabled them to charge interest rates as high as 300% on short-term cash and auto title loans. Despite the legislation, payday lenders in Ohio and across the nation have continued to bring new products to market that entrap desperate and/or unwitting borrowers in virtually inescapable cycles of debt.
But the fight isn’t over. Two recent initiatives by the Federal Consumer Finance Protection Bureau (CFPB) may serve to level the playing field for working-class consumers. First, the CFPB has in proposed rules that would prohibit mandatory arbitration clauses that deny groups of consumers their day in court. The Wells Fargo scandal should provide some momentum toward the passage of such reasonable restrictions.
Even more important, the CFPB has proposed an aggressive set of rules to regulate the payday lending industry. The proposed regulations would end payday debt traps by requiring lenders to ensure borrowers have the ability to repay their loans and cut off repeated debit attempts that rack up exorbitant fees. The new regulations would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.
While consumer advocates ranging from the Pew Charitable Trusts to the Southern Baptist Conference don’t believe the rules go far enough, they are a significant and important start. Under federal law, interested parties have until October 7 to comment on the CFPB’s proposals. The industry has already organized its forces and is submitting statements denigrating both the regulations and the rulemaking process.
If the legal abuses and exploitation of working-class consumers angers you, then you are also an “interested party,” and you can add your voice to the process. Log in to www.regulations.gov and submit your comments, or you can email a statement to FederalRegisterComments@cfpb.gov, or send a letter to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street, NW., Washington, DC 20552. All submissions should refer to Docket No. CFPB-2016-0025 or RIN 3170–AA40. If you’re not sure what to say, visit www.stopohioforeclosure.com, where my office is posting a model statement.
I’m devoting considerable time and resources to campaign on behalf of the proposed rules for two reasons. First, the financial industry will never stop fighting to preserve its ability to earn huge profits by exploiting and cheating desperate consumers. Second, the decades-long war the payday lending industry has waged against working families must come to end.
Marc Dann is Managing Partner of the Dann Law Firm. He specializes in representing clients who have been harmed by banks, debt buyers, debt collectors, and other financial predators. He has fought for the rights of thousands of consumers and brought class action lawsuits in both private practice and as Ohio’s Attorney General.