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Let Consumers Sue Companies (nytimes.com)

Posted by msmash on from the changing-the-system dept.

Richard Cordray, the director of the Consumer Financial Protection Bureau, writes: When a data breach at Home Depot in 2014 led to losses for banks nationwide, a group of banks filed a class-action lawsuit seeking compensation. Companies have the choice of taking legal action together. Yet consumers are frequently blocked from exercising the same legal right when they believe that companies have wronged them. That's because many contracts for products like credit cards and bank accounts have mandatory arbitration clauses that prevent consumers from joining group lawsuits, forcing them to go it alone. For example, a group lawsuit against Wells Fargo for secretly opening phony bank accounts was blocked by arbitration clauses that pushed individual consumers into closed-door proceedings. In 2010, the Consumer Financial Protection Bureau was authorized to study mandatory arbitration and write rules consistent with the study. After five years of work, we recently finalized a rule to stop companies from denying groups of consumers the option of going to court when they are treated unfairly. Opponents have unleashed attacks to overturn the rule, and the House just passed legislation to that end. Before the Senate decides whether to protect companies or consumers, it's worth correcting the record. First, opponents claim that plaintiffs are better served by acting individually than by joining a group lawsuit. This claim is not supported by facts or common sense. Our study contained revealing data on the results of group lawsuits and individual actions. We 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 the arbitration cases we studied, on average, 16 people per year recovered less than $100,000 total. It is true that the average payouts are higher in individual suits. But that is because very few people go through arbitration, and they generally do so only when thousands of dollars are at stake, whereas the typical group lawsuit seeks to recover small amounts for many people. Almost nobody spends time or money fighting a small fee on their own. As one judge noted, "only a lunatic or a fanatic sues for $30."

5 of 110 comments (clear)

  1. Feeding the tort lawyers by peterofoz · · Score: 3

    I've been a knowing or unknowing party to many consumer class action lawsuits and I usually get coupons, rebates, and the occasional $5 payout. The only ones making millions off this are the attorneys filing the lawsuits.

    1. Re:Feeding the tort lawyers by ShanghaiBill · · Score: 4, Insightful

      Even if class action lawsuits fail to compensate consumers, they still act as a deterrent against bad corporate behavior. You are not rewarded, but the company is still punished.

    2. Re:Feeding the tort lawyers by bluefoxlucid · · Score: 4, Interesting

      That's not the point.

      Business-to-consumer contracts are legal documents, the understanding of which requires a high degree of technical knowledge. Likewise, there are few businesses with whom to do business in many cases--banks are abundant, yet most banks have these clauses, and so consumers are essentially locked into such agreements or locked out of the market. Searching for a bank without such a clause takes time and skill; and if the bank doesn't have the products (online banking with MFA, interest rates, fast wire transfers) of other banks, it's not equivalent in the market.

      The Consumer Financial Protection Bureau was chartered by the President to execute legislation by Congress to provide for a certain regulatory need in the interest of the people of the United States. They have made a decision, and Congress seeks to countermand that decision. What great reasoning does Congress have for taking the legal right of due process in civil disagreements away from the Consumer?

      Class-action lawsuits allow consumer to sanction a business, to hold a legal threat over its head if it acts in a way legally liable in a civil context. It's the stick that comes behind the carrot in encouraging ethical business. Without a class-action suit, each individual must take their own time, money, and risk to address these behaviors--which means fewer individuals will achieve representation, and so the risk of harm to a business for acting in an unethical manner harmful to its customers is fractional. Even if all customers did come to self-represent, they would sink an enormous amount of time and effort into seeking redress, instead of into any more-useful pursuit.

      Arbitration is an ineffective and inefficient method of encouraging or enforcing fair and ethical business behavior.

      --
      Support my political activism on Patreon.
    3. Re:Feeding the tort lawyers by Anonymous Coward · · Score: 3, Interesting

      Very true. The only thing that will really get the attention of large companies is large monetary payouts that the top execs then have to explain to the shareholders who end up paying the settlement fee.

      I will also add that, while IANAL, to say that the lawyers on those class action suits don't earn their fees is not really fair. Being a lawyer involves a lot of really boring and tedious work that would drive most people insane. Plus a lot of these expenses are paid up front by the lawyers with no guarantee of being reimbursed later. I agree that the settlement amount should be separate from legal fees, but one facet of a horribly broken system at a time please.

  2. That Wells-Fargo one still twists my brain by H3lldr0p · · Score: 5, Interesting

    How can the court hold that these people who never authorized, let alone agreed to the terms, of the credit card or account should have to follow the rest of the contract they never agreed to? That doesn't make any sense, legally or otherwise!