While Congress Meddles Financial Educators Must Scramble

By Dan Kadlec

July 26, 2017

Financial literacy offers more protection than the law

Yes, you can. No, you can’t. Well, we’ll just have to wait and see.

Forgive the whipsaw. But individuals opening bank and credit card accounts the past few weeks have no idea where they stand when it comes to their rights in a dispute over financial malpractice. They have federal lawmakers and regulators to thank for the confusion.

A couple weeks ago, the Consumer Financial Protection Bureau issued a rule forbidding any fine print that would preclude individuals from banding together to hold banks, credit card companies, student lenders and others accountable via lawsuit. This rule gave individuals relief from rules requiring disputes to be resolved in arbitration hearings, which Wall Street prefers.

But this week, Bam. The house passed legislation that would block the rule. The Senate is working on a similar bill and President Trump has said he would sign it. In essence, the banks seem certain to get their way. Arbitration will be individuals’ only recourse should they feel wronged.

Never mind if you think that makes sense. Reasonable people line up on both sides. The banks say class action lawsuits are often frivolous, ginned up by lawyers that get wealthy while the costs get spread around to customers.

“When it comes to resolving consumer disputes over credit cards, checking accounts, or peer-to-peer loans, consumers get more money, more quickly from arbitration than from class action lawsuits,” says John Berlau, senior fellow at the Competitive Enterprise Institute, a conservative think tank.

Consumer groups view forced arbitration as nothing less than the denial of your fundamental right to be heard in a court of law. And they note that, according to the CFPB, more than 34 million consumers received $1 billion in payments from individual lawsuits over the past five years; arbitrators have awarded only $360,000 to consumers in two years of case studies.

“Instead of supporting a reasonable rule that helps consumers get back their day in court, the U.S. House sided with big banks, which for too long have used their fine-print contracts to take Americans’ rights away,” says Christine Hines, legislative director at the left-leaning National Association of Consumer Advocates.

The jockeying shows how whimsical financial law can be. Right About Money raised the specter of diminished consumer protection even before President Trump took office. As I have said in the past, we don’t play politics. We just interpret how changes pose challenges for financial educators.

Arbitration is not a difficult concept—and it is embedded in many financial contracts. This might be a good time to introduce what consumers give up and what they gain when they open a brokerage or other account that precludes big lawsuits. And of course, the back-and-forth nature of this issue in Congress only reinforces the need for individuals to understand how money works and think for themselves. You never know what Congress will do next.

More on how Trump will change financial education:

PART ONE: TRUMPED! Back to the Future for Consumer Protections

PART TWO: TRUMPED! How Student Loans May Get  More Complicated

PART THREE: TRUMPED! Why Payday Lenders Must Be in Crosshairs of Financial Literacy Teachers

PART FOUR: TRUMPED! How Obamacare Repeal and HSA Focus Would Change Financial Education

PART FIVE: TRUMPED! The Message Behind Soaring Bank Stocks (It’s Not All Good)

Posted in Classroom, Policy on July, 2017