The other day I got a letter from my credit card bank, Citibank. It began, “We’re replacing your existing Card Agreement with a new version, which is enclosed.” They claimed that “It’s designed with you in mind,” but I doubt that.
The new Agreement is described in detail, without any indication of what is new, so I don’t know what they have changed. What hasn’t changed is the tilt of the Agreement toward Citibank. Interest rates for loans are very low these days. Rates for mortgages range between 2.5% and 4%. Auto loans are even cheaper, between 2% and 3%. My home equity loan from my local bank is 3.5%. When big banks borrow money, they pay close to zero interest.
But don’t borrow money from your credit card bank. My new Agreement, like the old Agreement, lists huge rates for money I “borrow” from Citibank. If I owe money on my card, the rate is 14.24%. If I get a cash advance, the rate is 25.49%, beginning the moment I get the money. There are also fees. A cash advance costs 5% of the amount, in addition to the interest.
These are the costs of having a credit card. We might think they are unreasonable, but getting a card means agreeing to one-sided Agreements like this one. If I didn’t like any of the changes to my Agreement, whatever they were, I could close my account.
But on one new provision in my new Agreement, I was given a choice. Citibank wants any disputes about my account to be subject to arbitration, meaning that the dispute is settled by an arbitrator, without recourse to the courts. Here’s why Citibank and other credit card companies like this idea.
An arbitration is an individual case, so consumers can’t band together in a class action suit. The result is purely monetary, so if the dispute is caused by fraud or other illegal action by the bank, they are not subject to legal penalty. The cost of arbitration is picked up by the bank and they typically select the arbitrator (do you know one?), steering lots of business to arbitrators who deliver verdicts they like. One big arbitration service, the National Arbitration Forum, had to get out of the business of consumer arbitration because it was so cozy with the banks that it was being sued by many city and state attorneys.
Wells Fargo, the current Dishonest Bank of the Year, defrauded countless customers by creating millions of fake accounts in their names. Now it is killing lawsuits filed by its customers by moving the disputes to arbitration. If successful, the bank might have to repay fees they charged to the customers, but would not be liable for penalties due to fraud. Although some judges have ruled that Wells Fargo’s fraud should be adjudicated in court, other judges have forced customers to go to arbitration.
The dishonesty of Wells Fargo over many years, cheating millions of customers for many years, and thus far escaping with no jail time for any employee, shows how insignificant we consumers are when we come up against giant corporations. Even well known people, like the Los Angeles music star Ana Bárbara, get crushed by their power. A Wells Fargo employee created sham accounts and credit lines in her name, took out more than $400,000 of her money, then regularly went to her house to steal her Wells Fargo statements from her mailbox. She had to cancel appearances, costing her hundreds of thousands of dollars. Instead of her day in court, Bárbara will have to go to arbitration.
Protection for the consumer can only come from the government. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 takes its name seriously. Dodd-Frank does not let banks force consumers into arbitration for the biggest loans we take out, mortgage and home equity loans. It created the Consumer Financial Protection Bureau to write regulations to implement that change. It also asked the CFPB to study credit card arbitration agreements and report to Congress.
The government effort to examine credit card “agreements” about arbitration is why my bank offered me the chance to opt out of arbitration. All I had to do was write a letter to them saying I rejected the arbitration provision of my “updated Card Agreement”. I did that. Thank you, Dodd-Frank.
Republicans have fought against Dodd-Frank since it was first discussed in Congress. They tried to prevent the CFPB from ever being formed. Donald Trump has said he would dismantle Dodd-Frank, saying, ““Dodd-Frank has made it impossible for bankers to function.” Trump’s selection for Secretary of the Treasury, who will oversee banking regulations, is Steven Mnuchin. Mnuchin worked for Goldman Sachs, a financial firm that got a $10 billion bailout from the federal government in 2008. He made billions by foreclosing on homeowners during that financial collapse. His main qualifications for running Treasury is that he was Trump’s campaign finance chairman.
Dodd-Frank makes it less possible for the big banks to push us into tilted arbitration when the banks act like Wells Fargo. It’s an equalizer for the little consumer dealing with the big banks. Without it, we’re at their mercy.
Published in the Jacksonville Journal-Courier, December 13, 2016