Rule on Arbitration Would Restore Right to Sue Banks

The New York Times | May 5, 2016      The nation’s consumer watchdog is unveiling a proposed rule on Thursday that would restore customers’ rights to bring class-action lawsuits against financial firms, giving Americans major new protections and delivering a serious blow to Wall Street that could cost the industry billions of dollars.

The proposed rule, which would apply to bank accounts, credit cards and other types of consumer loans, seems almost certain to take effect, since it does not require congressional approval.

In effect, the move by the Consumer Financial Protection Bureau — the biggest that the agency has made since its inception in 2010 — will unravel a set of audacious legal maneuvers by corporate America that has prevented customers from using the court system to challenge potentially deceitful banking practices.

Honing their plan over decades, credit card companies, banks and other lenders devised a way to use the fine print of their contracts to push consumers out of court and into arbitration, where borrowers must battle powerful companies on their own. Without the ability to pool resources, most people abandon their claims and never make it to arbitration.

The new rules would mean that lenders could not force people to agree to mandatory arbitration clauses that bar class actions when those customers sign up for financial products. The changes would not apply to existing accounts, though consumers would be free to pay off their old loans and open new accounts that are covered.

And while those rules are not final yet — there will be a 90-day public comment period — financial industry lawyers say they are tough to derail.   Read more here.

Who Can Go After Banks for the Foreclosure Crisis?

Cities are arguing that they, too, were damaged by risky loans, and that they should be able to take the lenders to court to regain their losses.

The Atlantic | May 3, 2016     In the wake of the housing crisis, surprisingly few people or institutions have been held accountable for the risky lending practices that nearly wrecked the U.S. economy.  That’s partly because the people who were most damaged by the foreclosure crisis—the people who lost their homes—don’t have the resources to bring lawsuits.

But the families who lost their homes weren’t the only ones hurt by the foreclosure crisis. So there’s an argument to be made that they shouldn’t be the only ones who can go after the lenders. Cities, for example, lost tax revenue when homes sat vacant, and saw property values within their boundaries decrease when vacant and boarded-up homes sat empty. Cities had to pay for police and fire protection to keep those homes from being vandalized and to respond to reported break-ins and criminal activity at the houses.

So should cities be able to sue the banks, too?

That’s the question making its way through courts across the country after municipalities including Los Angeles, Miami, Oakland, and Providence all filed lawsuits against lenders under the Fair Housing Act. The lawsuits, which the banks are fighting to have dismissed, argue that the lending practices of these banks harmed the cities too. When lenders targeted minorities for risky loans, knowing that the borrowers would likely lose their homes, they knowingly deprived cities of tax revenue while making them shoulder the expenses of blocks of foreclosures, the lawsuits allege. Oakland, for instance, argues in its complaint against Wells Fargo that the city “has suffered economic injury based upon reduced property tax revenues resulting from (a) the decreased value of the vacant properties themselves, and (b) the decreased value of properties surrounding the vacant properties.” Last month a judge declined to dismiss the suit.

In these cases, the municipalities have accused lenders, including Wells Fargo, JP Morgan, and Bank of America, of “redlining,” or the practice of denying credit to people in particular neighborhoods because of their race, and “reverse redlining,” or the practice of flooding a minority neighborhood with exploitative loan products. These practices, they say, violate parts of the Fair Housing Act.  Read more here.