Fine print. You apply for a credit card, or open a bank account, and you sign the application without really reading it. You agree to a bunch of language that would take a whole day to read and about seven years of legal education just to comprehend the basic terms. That is if you even had the inclination to read it. No one reads credit card applications. Not even attorneys.
What’s the point? Are you going to get the account or the card if you say, "I don’t agree to this mandatory arbitration provision contained in the agreement, so I’m going to cross out this portion, initial the changes, and then after your corporate legal counsel approves the changes, we'll continue. I’ll wait." If you want the service, you simply agree to the bank's terms of the agreement. There is no negotiation.
While lawyers may not read credit card applications, I guarantee attorneys write them. Forget your notions of the free-market myth that "regulations are bad." Regulations are neither good nor bad. Laws are either effective or ineffective. The impact they have on the market is the best way to determine their efficacy. Economic critic Friedrich Hayek wrote: "In no system that could be rationally defended could the state just do nothing. An effective competitive system needs an intelligently designed and continually adjusted legal framework as much as any other.”
We need "intelligent design" in our laws and regulations, which is how laws evolve to serve the economy and us, as citizens. Regulations are easier to change or adjust than laws. When everything collapsed in the 2008 market crash, Congress passed a law creating the Consumer Financial Protection Bureau to promote regulations designed to prevent unfair and deceptive practices by the financial industry.
Back in 1925, Congress passed the Federal Arbitration Act, which allowed contracts to include provisions requiring arbitration to resolve disputes, rather than traditional legal remedies. Based on Supreme Court rulings interpreting the FAA, financial institutions began requiring arbitration in their agreements, thus limiting any legal consequences for misbehavior.
I don’t blame the banks. No one likes to get sued, even soulless financial institutions. But this is where Hayek’s intelligent design comes in. If the system allows one side to escape responsibility, how do you create accountability? This becomes even more important when there are a lot of customers. If a financial institution rips off a customer for an unwarranted $5 fee, no one is going to get their five bucks back by suing or using arbitration. Have that happen two million times and the bank has a $10 million dollar windfall with no risk of a class action lawsuit, all thanks to the fine print.
To counteract this imbalance, the CFPB passed a rule that prevented the fine print from forcing arbitration when a class action lawsuit by consumers was necessary to stop unfair and deceptive practices. Basically, even if the fine print said it wasn’t allowed, consumers could join together and sue for bad behavior by financial institutions when the rule went into effect.
Last week, the Senate voted — with Vice President Pence as the tie-breaking vote — to use the Congressional Review Act to invalidate the CFPB rule. (Back in February, I wrote about the Congressional Review Act: an expedited process that allows Congress to eliminate rules and regulations they dislike without the usual legislative process.) The rule will be repealed and the dwarf print wins and “Hi ho, hi ho, off to arbitration we all must go.”
As final evidence of the need for continued vigilance in making laws that protect us from the moneyed interests using unfair "fine print," I’d like to close with a quote from a certain politician whose first name begins with “B.” See if you can guess who it is:
“One of the great evils with which our own nation is menaced at the present time is the wonderful [stunning] growth of wealth in the hands of a comparatively few individuals . . . The very liberties for which our fathers contended so steadfastly and courageously, and which they bequeathed to us as a priceless legacy, are endangered by the monstrous power which this accumulation of wealth gives to a few individuals and a few powerful corporations.”
The politician? No, it wasn’t Bernie Sanders, but the Utah territory's first governor: a guy named Brigham Young.
Kent Winward is an Ogden attorney. Twitter: @KentWinward.