Let Freedom Ring Must Reads

Forced arbitration: Big banks’ ‘Star Chamber
By Colin Hanna



Elbridge Gerry was a colonial-era plutocrat who became a patriot, a signer of the Declaration of Independence and a champion of equal justice under the law. He initially refused to assent to the Constitution, although he attended the Convention, because it lacked a Bill of Rights.

One of his more famous sayings was that “a tribunal without juries would be a Star Chamber in civil cases” — “Star Chamber” being a reference to the supervisory English court known best for protecting friends of the king and persecuting his enemies.

One of the rights insisted upon by Gerry– echoed by Founders ranging from Madison, Adams, Hamilton, and Jefferson to Marshall – was trial by jury in civil as well as criminal cases, which they saw as an indispensable instrument for protecting freedoms. In fact, Gerry moved not once but twice to add it to the Constitution’s original text. Ultimately, the First Congress enumerated this critical protection in the Seventh Amendment.

Conservatives pondering whether to support efforts by today’s U.S. Senate Republican leadership to overturn the Consumer Financial Protection Bureau’s (CFPB’s) recently finalized rule limiting forced arbitration clauses in financial agreements would do well to consider whether such provisions prove Gerry’s words – and the principle behind them – prescient.

America’s early leaders understood the role independent juries had played in withstanding British tyranny. But as Gerry’s quote indicates, the primary principle behind the right was to ensure equal access to justice for all, not just the wealthy and powerful, even in civil cases. In particular, leaders like Gerry saw that without the right protections in place, civil proceedings could be used as means to oppress the powerless.

This is exactly what has happened with the ubiquity of forced arbitration. Powerful Wall Street banks today bury arbitration clauses in the fine print of almost every imaginable financial agreement signed by millions of Americans, from every walk of life, for services from bank accounts to credit and prepaid cards to loans. These clauses force disputes to be heard in private proceedings overseen by an arbitrator of the financial institution’s choosing.

And arbitration hearings, in tilting the scales of justice heavily to Big Business and rendering consumers virtually defenseless, seem indeed to be the 21st-century version of the Star Chambers. Like the clauses themselves, the hearings remain largely hidden from view, with no jury of one’s peers, no real chance for appeal, and no mandate even to adhere to the law, federal or state.

What’s more, most forced arbitration clauses bar class action lawsuits, which, while controversial when abused, further equalize the balance of power – and just as important, can hold bad actors among the Big Banks to account – by allowing citizens to band together to seek reimbursement in cases where financial injuries are either too small, or the costs would be too high, for them to fight the financial giants on their own.

As if an example of the potential for abuse inherent in forced arbitration clauses were needed, one is abundantly provided in the near-weekly headlines on the illegal actions, and legal reactions, of Wells Fargo. The bank recently disclosed a potential “significant increase” in the count of fake accounts it had opened, victimizing consumers. It also revealed two additional scandals involving the freezing and closing of accounts suspected of fraudulent activity and the unauthorized creation of insurance contracts, resulting in nearly a quarter of a million car loan customers having their vehicles repossessed for non-payment of policies they didn’t even know they had. In recent days, yet another scandal has emerged involving the unapproved billing of home warranty contracts to mortgage customers.

In every case, the nationwide bank has hidden behind forced arbitration clauses – with only 215 consumers nationwide filing such disputes against the $88 billion-a-year behemoth.

Granted, conservatives can hardly be expected to view the Consumer Financial Protection Board, with its own institutional biases, lack of safeguards and accountability, as a friendly vehicle for reform. But in this case, Congress must not afford to allow the perfect to be the enemy of the good. The practice of forced arbitration is so offensive to any sense of justice – as envisioned by Elbridge Gerry and the other Founders – that conservatives must demand the CFPB rule be preserved until Congress itself has opportunity to revisit the issue and rid America of the Big Banks’ Star Chambers.

Colin Hanna is President of Let Freedom Ring, a nonprofit public policy organization committed to promoting Constitutional government, free enterprise, and traditional values.

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