Banks and lenders bury terms in the fine print to block consumers from challenging fraud or hidden fees in court. Instead, these “ripoff clauses” force harmed consumers to challenge large corporations one by one in arbitration – a secretive system designed to favor banks and lenders.
Known as forced arbitration, this practice deprives consumers of their constitutional right to an impartial judge or jury. Instead, banks choose a private arbitration firm to decide the dispute, and consumers have little opportunity to present evidence or appeal a bad decision.
Many ripoff clauses also bar consumers from talking about what happened to them, keeping corporate scams and fraud out of the public eye. Indeed, reports show Wells Fargo customers tried to sue the bank over fake accounts as far back as 2013. But customers were kicked out of court and unable to share their stories because of these fine-print provisions – while Wells Fargo knowingly profited from fraud for another three years.
Acting at the direction of Congress, the U.S. Consumer Financial Protection Bureau (CFPB) spent over three years conducting the most comprehensive study on arbitration ever done. The data revealed that just 25 consumers pursue arbitration claims of less than $1,000 each year, as the vast majority of Americans simply give up when forced into arbitration. The study also suggests that consumers lose in arbitration, even when they win. Only 9% of consumers succeed in arbitration, and even those who win recover just 12 cents of every dollar claimed. In contrast, companies win 93% of the time, recovering 98 cents per dollar.
Following the study, the CFPB proposed a rule to restore customers’ ability to join together in court to hold banks and lenders accountable when they break the law and return transparency to arbitration by creating a public record of claims and outcomes.