Better Markets continues to watch for decisions in a number of important pending cases, including Roderick Ford v. TD Ameritrade, as well as track key issues in the courts.
Roderick Ford v. TD Ameritrade. In 2019, Better Markets filed an amicus brief in support of a class-action lawsuit alleging that brokers routinely violate their duty to seek the best execution of client trades because they route orders not to serve their clients’ best interest but instead to maximize incentive payments from exchanges, which are essentially a form of bribery. The case is on appeal to the Eighth Circuit, and the defendants are claiming that class certification is inappropriate because the damages must be calculated on an individual basis and not class wide. The case was argued back in September, so we expect the court’s decision at any time.
Other important issues that we are tracking in the courts include:
- Attempts to force public company shareholders into mandatory arbitration, a biased, secretive, and anti-consumer forum.
- Why this matters: Mandatory or forced arbitration takes away the rights of consumers and investors to seek relief in court when they are ripped off by banks and corporations. It forces them instead into secret, unfair and biased arbitrations. Those industry-run proceedings consistently favor the banks and corporations and rarely if ever result in meaningful recovery for consumers and investors. A court will decide if a public company can be forced to impose mandatory arbitration not just on its customers but also on any shareholders with claims against the company for fraud, mismanagement or other breaches of duty. If the answer is yes, then the toxic effects of mandatory arbitration will be further broadened, to the detriment of shareholders.
- Challenges to banking rules that will facilitate improper use of the national bank charter to insulate nonbank financial firms, including payday lenders, from important consumer protections under state law.
- Why this matters: Under the doctrine of preemption, certain state laws do not apply to national banks. But recent OCC and FDIC rules seek to stretch preemption beyond its intended scope. If left intact, these rules will help promote “rent-a-bank” schemes that allow all sorts of nonbank lenders to partner with national banks for the purpose of avoiding important consumer protections under state law. Chief among those protections are state usury laws, which—unless preempted—prohibit lenders from gouging consumers with sky-high interest rates and fees. If the rules are struck down in court, chalk up a win for millions of consumers who need and deserve credit on fair terms.
- Challenges to the CFPB’s harmful rule that rescinded the underwriting requirements for payday lenders, a commonsense provision that forced those lenders to determine whether borrowers could afford to repay their short-term loans marked by sky-high interest rates and fees.
- Why this matters: Under the Obama administration, the CFPB crafted important protections for consumers who need short-term or “payday” loans. Among them was the requirement that payday lenders determine a borrower’s ability to pay before extending credit. The purpose was to prevent those lenders from deliberately trapping desperate borrowers in endless cycles of unaffordable debt that saddle them with huge interest payments and fees over time. Under the Trump administration, the CFPB nullified those underwriting requirements in a deplorable example of irrational rulemaking plainly designed to accommodate the payday lending industry. Now a court will have the opportunity to rescind the rule and restore the underwriting requirements for the benefit of millions of vulnerable borrowers living on the economic edge.
