Consumer Financial Protection and Human Rights

Cornell International Law Journal Volume 50 Number 3 Fall 2017 Article 4 Consumer Financial Protection and Human Rights Chrystin Ondersma Rutgers Law School (Newark) Follow this and additional works at: https://scholarship.law.cornell.edu/cilj Part of the Consumer Protection Law Commons, and the Human Rights Law Commons Recommended Citation Ondersma, Chrystin (2017) "Consumer Financial Protection and Human Rights," Cornell International Law Journal: Vol. 50 : No. 3 , Article 4. Available at: https://scholarship.law.cornell.edu/cilj/vol50/iss3/4 This Article is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell International Law Journal by an authorized editor of Scholarship@Cornell Law: A Digital Repository. For more information, please contact . \\jciprod01\productn\C\CIN\50-3\CIN304.txt unknown Seq: 1 7-MAR-18 14:56 Consumer Financial Protection and Human Rights Chrystin Ondersma† This summer the Consumer Financial Protection Bureau proposed a rule that would restrict the use of mandatory arbitration clauses in consumer financial credit contracts. With the administration and Congress seemingly eager to pull back on consumer financial regulations, it is crucial to examine the rights at stake. Many financial institutions have agreed to protect and promote human rights, so pressure from consumers, human rights organizations, and consumer protection advocates may succeed even though Congress has declined to promulgate the CFPB’s proposed rule. This Article argues that the existing binding, mandatory arbitration system in consumer credit contracts is inconsistent with human rights principles, including property rights, rights to be free from discrimination, and due process rights. This Article then evaluates the CFPB’s rule from a human rights standpoint, and explores the CFPB’s role in mitigating human rights concerns triggered by arbitration clauses in consumer credit contracts. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. MandatoryArbitration, Consumer Credit, and Human Rights: The Legal Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. The Problem of Mandatory Arbitration in Consumer Credit Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Mandatory Arbitration in United States Law . . . . . . . . . . . C. Consumer Financial Protection Bureau Proposal . . . . . . . D. A Brief Introduction to Human Rights . . . . . . . . . . . . . . . . . 1. Human Rights Instruments of the United Nations . . . . 2. Human Rights and the Inter-American System . . . . . . . 3. The European System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Human Rights Pertaining to Mandatory Arbitration . . . . . . . A. Right to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. The Human Right to Property Generally . . . . . . . . . . . . . 2. Deprivation of Property via Mandatory Arbitration in Consumer Credit Contracts . . . . . . . . . . . . . . . . . . . . . . . . . B. Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Right to be Free from Discrimination Generally . . . . . . 544 R 548 R 548 551 553 555 556 557 559 559 560 560 R 561 562 562 R † Professor of Law, Rutgers Law School (Newark). The author thanks Jorge Contesse-Singh, Robert Lawless, Melissa Jacoby, Edward Morrison, Mark Weidemaeir, Jasmine Simmons, and Yuliya Guseva for helpful comments on earlier drafts, as well as research assistants Jasmine Simmons and Yian Pan. 50 CORNELL INT’L L.J. 543 (2017) R R R R R R R R R R R \\jciprod01\productn\C\CIN\50-3\CIN304.txt 544 unknown Seq: 2 7-MAR-18 Cornell International Law Journal 14:56 Vol. 50 2. Discrimination in Mandatory Arbitration Under Consumer Credit Contracts . . . . . . . . . . . . . . . . . . . . . . . . . C. Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Process Rights as Human Rights Generally . . . . . . . . . . . 2. Mandatory Arbitration and Due Process . . . . . . . . . . . . . D. Effectiveness of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Effective Remedies and Arbitration in Consumer Credit Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. The CFPB Proposal and Human Rights . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563 564 564 565 569 R R R R R 571 573 575 R R R Introduction In the fall of 2016, Wells Fargo paid $185 million in fines, including a $100 million fine from the Consumer Financial Protection Bureau (CFPB), for fraudulently creating as many as two million checking account for its customers without their consent.1 This practice went on for at least five years. How did the bank escape scrutiny for so long? Customers’ account agreements included a clause requiring that all claims be brought in closed-door arbitration proceedings.2 Now that the practice has been uncovered, customers who were harmed still sue in public court or pursue class action proceedings, despite calls for Wells Fargo to decline to enforce the arbitration clause.3 While some states have sought to challenge certain arbitration clauses as unconscionable, the Supreme Court has held that the Federal Arbitration Act preempts such legislation.4 Individuals have been unable to recover billions of dollars in wrongful charges because of mandatory arbitration clauses in consumer credit contracts. Proponents of mandatory arbitration often argue that arbitration is a cheaper alternative to litigation, but a number of consumers have found themselves without sufficient resources to challenge wrongful charges.5 One such individual attempted to challenge a $125 late fee on his Citibank 1. Michael Corkery, Wells Fargo Fined $185 Million for Fraudulently Opening Accounts, N.Y. TIMES (Sept. 8, 2016), http://www.nytimes.com/2016/09/09/business/ dealbook/wells-fargo-fined-for-years-of-harm-to-customers.html?_r=0 [https://perma.cc/ J7JC-VVC2]; Yuka Hayashi, Sen. Brown Plans Bill to Ban Forced Arbitration in Wells Fargo Sales Scandal, WALL ST. J. (Oct. 3, 2016, 5:17 PM), http://www.wsj.com/articles/senbrownplans-bill-to-ban-forced-arbitration-in-wells-fargo-sales-scandal-1475529477 [https://perma.cc/98YN-CF7L]. 2. Press Release, Senator Patrick Leahy, Leahy, Brown & Leading Democratic Senators Call On Wells Fargo To End Use of Forced Arbitration on Consumers, (Sept. 23, 2016), https://www.leahy.senate.gov/press/leahy-brown-and-leading-democratic-sena tors-call-on-wells-fargo-to-end-use-of-forced-arbitration-on-consumers [https://perma.cc/ 4GKT-ZKVG]. 3. Id.; Hayashi, supra note 1 (describing bill proposed by Sen. Brown to ban e (...truncated)