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Friday, 14 July 2017 04:57

Banks Riled by New Consumer Finance Protection Bureau Rule

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elizwarrencfpbThe Consumer Financial Protection Bureau was the brainchild of Elizabeth Warren. (Photo: Tim Pierce)

In the scrum of unsettling news about an administration and Congress that are enacting harmful right-wing measures on an almost daily basis, it is affirming to note when progress is being made. The Conversation recently ran an article about the important steps that the Consumer Financial Protection Bureau (CFPB) has already taken to protect consumers in the United States. The brainchild of Elizabeth Warren, the CFPB was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act that passed Congress in 2010. The agency opened in 2011.

One positive step the CPFB has taken is to ban the forced consumer arbitration requirements which are often included in the fine print of consumer agreements for credit cards, loans and other products offered by banks and financial institutions. These requirements have put a stranglehold on consumer efforts to recover fraudulently obtained funds -- and to reform the banking industry by allowing court cases seeking remedies to unfair practices. The ban represents a significant step in the struggle for a pro-consumer footing in relation to the financial industry.

In a July 10 Consumer Financial Protection Bureau news release, the agency announced,

a new rule to ban companies from using mandatory arbitration clauses to deny groups of people their day in court. Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. By forcing consumers to give up or go it alone – usually over small amounts – companies can sidestep the court system, avoid big refunds, and continue harmful practices. The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," said CFPB Director Richard Cordray. "These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together."

The CFPB news release notes that the regulation applies "to the major markets for consumer financial products and services overseen by the Bureau, including those that lend money, store money, and move or exchange money."

There is no doubt that this new regulation is a victory. However, as the article in The Conversation emphasized, the Bureau itself is under withering assault by the Republican Congress, particularly in the House of Representatives. As The Conversation article states, "Republicans in Congress and the White House have been very blunt about their desire to gut the Consumer Financial Protection Bureau (CFPB)." The article also emphasizes,

The CFPB is under attack from Republican members of Congress who believe more in bank protection than consumer protection. Some members have proposed eliminating the agency altogether.

The House of Representatives has passed a bill that would cripple the CFPB by, for example, taking away the power it used to fine Wells Fargo for opening illegal accounts and concealing its complaint database from public view. In other words, it would force the bureau to sit idly by as financial institutions lie to consumers.

The new CPFB rule will allow consumer class action suits against banks and financial institutions. These institutions detest class action lawsuits, in which they must confront a group of consumers often represented by high-powered plaintiff's attorneys who are specialists in taking on companies that have committed abuses. The settlements, if a company is found guilty, apply to all the people who have been taken advantage of (if they indicate acceptance of the settlement). It is exponentially easier for businesses to force arbitration and take on one consumer at a time for smaller amounts than to face a class action lawsuit. Furthermore, in arbitration there is no opportunity to force the banks and financial institutions to change their behavior, unlike courts, which can obtain agreements to abandon unfair policies. In addition, the arbitrators are currently often chosen by the financial industry or from a panel of arbitrators chosen by the financial industry. The remuneration of arbitrators comes from the banks and financial institutions, thus inherently providing a pro-corporate incentive to the arbitrators.

This information provides the context for the fierce opposition to allowing class action suits that came from The U.S. Chamber of Commerce in a news release. Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), and David Hirschmann, president and CEO of the U.S. Chamber Center for Capital Markets Competitiveness (CCMC) stated,

The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue. CFPB’s actions exemplify its complete disregard for the will of Congress, the administration, the American people, and even the courts, who have ruled that its structure is unconstitutional. 

Even this one regulation faces virulent opposition in a pro-corporate Congress. In contrast, Elizabeth Warren stated in a news release posted on her Senate website:

This CFPB rule will allow working families to hold big banks accountable when they're cheated and help discourage the kinds of surprise fees that consumers hate. In the upcoming months, the US Chamber of Commerce and other big business lobbying groups will go all out to get Republicans in Congress to reverse this rule, so Republicans will have to decide whether to defend the interests of their constituents or shield a handful of wealthy donors from accountability.

The senator persists, as she should.