Big Banks are Hiding Behind Credit Unions to Get Away with Forced Arbitration

With Wells Fargo and Equifax providing vivid illustrations of why blocking consumers from taking banks and credit agencies to court might not play well on main street, Wall Street lobbyists have resorted to a new tactic in their relentless attack on the CFPB’s rule against forced arbitration: Fake news. That’s about the only way to describe the industry’s assertion that credit unions and community banks just can’t live without forced arbitration.

Photo by Sean via Flickr.

Given the popularity of small banks and credit unions — which are among the very few financial institutions consumers view favorably — it’s no wonder the bigger banks want lawmakers to think they’re ideologically aligned with the little guy. But the truth is far different. As John Ruby, senior vice president and chief lending officer at Bellco Credit Union stated during a CFPB hearing on the rule, “the existence or nonexistence of arbitration clauses has been a non-issue in Bellco’s history.” In fact, only a small minority of credit unions even use forced arbitration clauses: around 3% for credit card contracts and about 8% for checking account contracts, according to a 2015 study by the CFPB.

That’s led to credit unions’ reputration as “kinder, gentler financial instutitions,” which is how Louis Vetere, president and CEO of Garden Savings Federal Credit Union, described their reputation during a CFPB field hearing. As Vetere explained it, while arbitration can be a valuable tool for resolving disputes, it would be inappropriate to mandate it in a pre-dispute contract, and credit unions like his do not want to take away their members’ right to sue if they feel they’ve been wronged. Rather, he asserted, members should have the choice of which forum they want to heard in.

We agree, and so do most other credit unions and smaller community banks. And in clear recognition of how beneficial class action lawsuits can be in holding financial wrongdoers accountable, the Credit Union National Association (CUNA) filed its own class action suit against Equifax, in a move that would be virtually impossible if the Senate kills the CFPB’s rule. So it seems hypocritical — at the very least — to see CUNA siding with big banks in trying to do to just that.

Most credit unions don’t want, need or use forced arbitration clauses. Most of their customers like them because they don’t take such steps to screw over consumers. Most Americans understand that arbitration only helps Wall Street, not Main Street. And most of us can surely agree that if CUNA can band together and take the likes of Equfax to court, consumers should be able to do the same.

This last minute, last ditch misinformation campaign is designed to use credit unions’ relative popularity to inoculate a deeply unpopular industry from being held accountable by their own customers. If senators let them get away with it, customers from Portland, Oregon to Portland, Maine will pay the price for decades to come.

There’s no good reason to kill the CFPB’s forced arbitration rule, but plenty of reasons every American should be wary of Wall Street’s “Do as I say, not as I do” approach to deciding who should have access to the courts, and who should be locked out and left behind.