Consumer Law

Is Mandatory Consumer Arbitration Dying?

By Brian Wolfman

U.S. PIRG's Consumer Blog reports on this story from Money Talk News suggesting that mandatory consumer arbitration is on its way out. It notes, for instance, that the recently-enacted federal financial reform legislation empowers the new Consumer Financial Protection Bureau to limit or ban mandatory arbitration in contracts for consumer financial products and services. The Money Talk News story caught my eye because of the example it used to illustrate why mandatory consumer arbitration is unfair:

Just last week Wells Fargo was ordered to pay $200 million in connection with this class action suit that accused it of deliberately rearranging customer checks and account debits to maximize overdraft charges. What Wells Fargo was doing ? and many banks still are doing ? is clearing big checks first, which may reduce a checking account to zero, then clearing the smaller checks and debit charges made on the same day. Here?s how that would maximize their  overdraft charges: Say you have $2,000 in your checking account. You use your debit card to make ten $10 purchases. Then you write a check to buy something that costs $2000. What should happen is the ten $10 purchases would clear, but the $2,000 check would bounce, resulting in a $30 bounced check fee. Common industry practice, however, is to re-order the debits: clear the $2,000 check first, leaving the account with a zero balance. Then bounce the ten $10 purchases, resulting in $300 of bounced check fees. Think that?s fair? It?s been going on for years. Would going to arbitration with Wells Fargo over $300 in fees have changed anything? No. Would hundreds of people banding together and costing Wells Fargo $200 million dollars change their behavior? Quite possibly. (In this specific case, however, not yet ? Wells is appealing the judge?s ruling.)

Full post as published by CL&P Blog on August 19, 2010 (boomark / email).