Opinion

Businesses Are Not Blocking Access to the Courts to Help Consumers

To support the implausible claim that consumers don’t need access to our courts of law, the opinion column published last week (“The Litigation Fallacy: Making It Easier to Sue Doesn’t Necessarily Help Consumers,” Joe Colangelo, Consumers’ Research, October 13), attacks two important efforts currently underway to strengthen consumer protections.

The first is the Consumer Financial Protection Bureau’s effort to stop banks and other lenders from forcing consumer claims for gross wrongdoing into arbitration. The second is Congress’s effort to stop brand-name drugmakers from blocking development of affordable generics by denying access to samples needed for testing. Consumers Union, where I work, is actively supporting both. Here’s why.

The CFPB effort helps correct a gross imbalance that shields banks and other lenders from accountability to consumers for breaking the law.

Arbitration was originally conceived as a way businesses could agree to resolve business disputes. The Federal Arbitration Act was passed a century ago to permit businesses to negotiate these agreements, based on comparable negotiating power, with an experienced eye on the business interests at stake.  

But in recent years, many businesses are cynically twisting arbitration into a tool for evading accountability to consumers. One-sided arbitration clauses are slipped into standard-form, take-it-or-leave-it consumer sales and service contracts. There is no negotiation. Often, consumers are not even aware they are supposedly “agreeing” to give up legal rights. Even when they are aware, they have no choice.

The Wells Fargo scandal is one particularly egregious example of how forced arbitration works against consumers. Wells Fargo opened 2 million sham bank and credit card accounts over several years, socked consumers with bogus charges and fees, and then used a forced arbitration clause buried in its standard-form account contracts to block defrauded customers from bringing legal action. Consumers were left stranded until the CFPB ultimately took enforcement action last month.

Congress directed the CFPB to address this injustice for bank accounts, credit cards, and other consumer financial services. As the CFPB’s meticulous evidence-based 2015 report demonstrates, that was a good place to start.

According to the facts documented in that report, during the years from 2008 to 2012, wronged consumers who had the right to bring court action against their bank or lender recovered a total of $2.2 billion — after subtracting out all attorneys’ fees and other court costs — with 34 million consumers sharing in those recoveries. By contrast, during the two years in this same period for which information was available, only 32 consumers forced into arbitration obtained any recovery. Not surprisingly, very few consumers were able to meet and justify the costs and burdens of pursuing a claim in arbitration.

Indeed, awareness of the high practical hurdles that forced arbitration imposes on consumers is why some businesses have become so fond of it.

Based on that report, and after duly considering further input from banks and other lenders, large and small, the CFPB proposed a new rule, directed at re-opening the courthouse doors to consumers where the wrongdoing has been widespread. The CFPB could have gone further, but more than 275 consumer and other public interest advocacy organizations are supporting the CFPB’s effort. More than 100,000 individual consumers have also written the CFPB in support.

Protecting consumers’ access to court is essential, not only so they can hold corporate wrongdoers accountable, but also because the existence of this right helps create an effective deterrent to corporate wrongdoing. A key part of protecting consumers is empowering them to protect themselves.

The second effort attacked in the opinion column, the CREATES Act, would stop drug manufacturers who are sitting on a profitable monopoly from blocking development of more affordable generic alternatives for consumers. The bill targets a scheme brand-name drug makers have devised to exploit loopholes in an FDA law designed to protect consumers, to instead harm consumers, by denying them the power of choice in a competitive marketplace.

As the opinion column notes, some drugs do indeed pose serious potential health risks if not used properly, and the FDA can require safety protocols, known as Risk Evaluation and Mitigation Strategies, to ensure proper use. But brand-name drug makers have been exploiting one of these legitimate safety protocols, the restricted system for distributing the drug to patients. They exploit it to block other drug manufacturers from access to the samples they need for testing, to ensure that their generic is medically equivalent — an important part of satisfying FDA safety requirements. And sometimes, there isn’t even a REMS to justify the restricted distribution system; it can be there just to block competition.

Ensuring product safety is a top priority of our work at Consumers Union. But we have seen that safety concerns can also be cited as a pretext for blocking new competition and denying consumers choice, in order to preserve monopoly profits. The CREATES Act would enable the other drug makers to get samples, and allow them to participate in the REMS where that makes sense.  Importantly, it would not compromise patient safety in any way.

 

 

George Slover is senior policy counsel for Consumers Union.

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