Last week, Rick Fischer, a respected senior bank industry lawyer, told a reporter he was"amazed" at the amount of work the CFPB had accomplished "in such a short amount of time." His clients probably called and whined, but he's right. The CFPB's been getting results for consumers in just the short 30 months or so it's been up and running as the nation's first federal consumer financial regulator with just one job, protecting consumers.
This week, the CFPB stepped up its game another notch. First, it ordered GE Capital Retail Bank to return $34 million to consumers who'd been deceived by a GE Capital Retail Bank CareCredit medical debt credit card. The card had been pitched to vulnerable consumers worried about paying their medical bills: worse, it was pitched by their doctors and dentists and even their receptionists while they were waiting for treatment or, as the CFPB explained, "maybe in between treatments." As CFPB Director Rich Cordray further explained:
"When people seek medical care, they are in a particularly vulnerable situation. They are sick or injured, or maybe a loved one is in pain. They are usually filling in and signing multiple forms: insurance forms, HIPAA disclosures, and medical history paperwork. Unlike when they are at a bank or when they receive unsolicited mail, they are not “on guard” financially."
The CareCredit card had a feature common to the ads you see on late night TV for furniture and rug stores: "No money down and no interest for a year!" This "deferred interest" feature was not explained well and the risks of failing to comply with its terms weren't either. As Director Cordray elaborated:
"But the card was really a “no interest if paid in full” product that is a much trickier deal. The cards typically charge no interest for a promotional period – which ranges from six to 24 months – but they are accruing interest at a 26.99 percent rate the whole time. If the patient does not pay the complete balance by the end of the promotional period, the accrued interest is then applied in full. And, as is the case with many deferred-interest products, the 26.99 percent interest rate on the CareCredit card is substantially higher than the rate on standard, general-purpose credit cards that the patient might otherwise have used to pay the bill. The result can be that the patient is misled into signing up for a very expensive loan."
GE Capital Retail Bank cooperated with the CFPB, so unlike the other credit card companies, most recently JP Morgan Chase, that the CFPB has penalized for unfair practices, it paid no civil penalties. But GE Capital Retail Bank was forced to to refund $34 million in ill-gotten gains to victims.
By the way, don't think Rick Fischer's gone soft on the CFPB. In an alert to clients on the CareCredit order, he warned that the CFPB's additional requirements had "impose[d] novel and burdensome application requirements" on deferred interest products.
But what if the CFPB hadn't spotted this unfair practice? What if an individual consumer, or a group of consumers who wanted to band together in a class action (because the individual amounts they'd each lost were too small to afford an attorney), had sought to sue GE Capital Retail Bank in court?
In most cases, they could not. Like virtually every other credit card company, bank, wireless company, car dealer, nursing home, employer or other company that provides services to consumers that I am aware of, GE Capital Retail Bank's small print boilerplate contractsinclude a clause severely restricting consumer rights. The CareCredit card contract (pdf) explains:
PLEASE READ THIS SECTION CAREFULLY. IF YOU DO NOT REJECT IT, THIS SECTION WILL APPLY TO YOUR ACCOUNT, AND MOST DISPUTES BETWEEN YOU AND US WILL BE SUBJECT TO INDIVIDUAL ARBITRATION. THIS MEANS THAT: (1) NEITHER A COURT NOR A JURY WILL RESOLVE ANY SUCH DISPUTE; (2) YOU WILL NOT BE ABLE TO PARTICIPATE IN A CLASS ACTION OR SIMILAR PROCEEDING; (3) LESS INFORMATION WILL BE AVAILABLE; AND (4) APPEAL RIGHTS WILL BE LIMITED.
While this provision buried in the terms ostensibly provides a consumer opt-out (("if you do not reject it") right, GE Capital and other banks are confident most consumers won't see it. So, nearly all bank customers cannot go to court or join a class action. Instead, they are forced into special interest controlled arbitration. It's no better than a kangaroo court (Wikipedia). Essentially, arbitration forums are expensive, non-appealable (even if an arbiter misunderstands the law), secretive, and leave no paper trail.
When Congress enacted the Wall Street Reform and Consumer Protection Act establishing the CFPB, it gave the bureau authority to ban or regulate forced arbitration. But first, it required that the bureau conduct a study. As its second major effort this week, the CFPB finished the first part of that study, with positive results for consumers, and held a field hearing today in Dallas to discuss it. The CFPB study found, not surprisingly, that few consumers take advantage of arbitration. Banks do. Arbitration is a special interest Get-Out-of-Jail-Free-Card, not a fair fight.
In a joint press release, MASSPIRG's national affiliate, U.S. PIRG, and other leading consumer groups explain today why forced arbitration clauses are unfair and must be banned. We explain in the release:
“Unfair arbitration clauses encourage unfair corporate practices and sloppy customer service. If your customers cannot take you to court, why should you care about their complaints? We urge the CFPB to act quickly to ban forced arbitration clauses in financial products and services contracts."
We're not against arbitration, we're only against forced arbitration. If consumers agree, after a dispute has arisen, to go to arbitration, that's fine. But boilerplate arbitration clauses shouldn't be used to deny a consumer a day in court or the right to join a class action lawsuit. The press release has more. Also, in a few days, the CFPB will upload the video of the Dallas hearing, which features testimony of consumer advocates Christine Hines of Public Citizen and Ellen Taverna of NACA.
And, if you'd like to read more about problems with CareCredit and other medical debt cards, see this October investigative story "Patients Mired in Costly Credit From Doctors" by Jessica Silver-Greenberg of the New York Times.
Co-written with USPIRG's Consumer Program Director, Ed Mierzwinski