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Friday, 27 October 2017 05:41

Congress Takes Aim at Consumer Financial Protection Bureau

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cfpbarbWill the Consumer Financial Protection Bureau survive a Republican Congress and president? (Photo: Mike Licht)

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On July 14, I wrote a commentary entitled, "Banks Riled by New Consumer Financial Protection Bureau Rule." It was about how the Consumer Financial Protection Bureau (CFPB) had issued a regulation that would allow bank consumers to sue for fraud and negligence, instead of being forced into arbitration by clauses in different account agreements (including credit cards). In short, the CFPB overrode the contract arbitration stipulations and also allowed class action suits for widespread bank improprieties.

It was a bit of good news amid the usual torrent of distracting Trump tweets, and it appeared that an act of justice was actually occurring during the Trump administration. As we lament the horrors of the Trump White House, these rare victories are important to note and celebrate.

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

However, as Democracy Now thoroughly reported yesterday, the corrective pro-consumer rule is going to be short lived:

After nine months of struggling to deliver on their legislative priorities, Senate Republicans found unity Tuesday when they overturned a rule that makes it easier for Americans to sue banks and credit card companies. The rule was developed by the Consumer Financial Protection Bureau and would have allowed people to file class action lawsuits that could have cost the banks billions of dollars.

An October 24 CNBC article explains the regulation reversal on arbitration:

Banks, credit card issuers and other financial companies will be able to block customers from banding together to sue over disputes, after the U.S. Senate on Tuesday narrowly killed a rule banning the firms from using "forced arbitration" clauses.

Republican Vice President Mike Pence appeared on the Senate floor at 10:11 p.m. EDT (0211 GMT) to cast the tie-breaking vote as the chamber's president and approve the most significant roll-back of Obama-era financial policy since President Donald Trump took office vowing to loosen the leash on Wall Street. The final count was 51 to 50.

The Republican-dominated House of Representatives has already passed the resolution repealing the Consumer Financial Protection Bureau (CFPB) rule released in July. The resolution also bars regulators from instituting a similar ban in the future.

After a signature from Trump, expected soon, the resolution will abruptly end a years-long fight that has included multiple federal regulators, consumer advocacy groups, and financial lobbyists.

As noted in a Center for American Progress background sheet on arbitration:

When arbitration is a required mechanism from the start rather than a voluntary way to settle disputes with consumers and workers, it gives companies a free pass for low quality and abusive practices. When the risk of being held accountable is low, there is less incentive for companies to do the right thing. In addition, because arbitrators are likely to want to do business with a company in the future, they have a built-in reason to side with the company over the consumer.

The most economically vulnerable individuals are also the most likely to be affected by these clauses.

The reason arbitrators are beholden to banks and companies is that the banks, in this case, appoint the arbitrators. If an arbitrator rules too often with the plaintiff the company is likely to move onto another arbitrator.

Thus, even a regulatory victory from the CFPB -- which opened in 2011 after Elizabeth Warren fought to make the agency a reality -- is being nullified by Congress and Trump. The impact of this change may not be understood by many bank consumers until they try to sue for actions that hurt them financially, such as Wells Fargo's illegal acts, which CNN Money described on August 31:

Wells Fargo has uncovered up to 1.4 million more fake accounts after digging deeper into the bank's broken sales culture.

The findings show that Wells Fargo's problems are worse than the bank previously admitted to when the scandal began almost a year ago.

Wells Fargo (WFC) now says it has found a total of up to 3.5 million potentially fake bank and credit card accounts, up from its earlier tally of approximately 2.1 million. In other words, there are two-thirds more fake accounts than previously realized.

As noted on Democracy Now, the limiting of any consumer action against Wells Fargo to arbitration prevents class action suits, which -- due to the range of victims and costs of litigation -- are vital in holding a company such as Wells Fargo fully accountable.

The congressional action is representative of what are going to be continuing attacks on the CFPB, because banks and corporations want the scale of justice weighted against the consumer. The majority of Republicans continue to seethe over the existence of the CFPB, which came about by congressional vote in 2010 when the Democrats controlled Congress.

Unfortunately, good news commentaries such as the one I wrote on July 14 may continue to point to short-lived victories, considering the regressive bent of the Trump administration and Congress. In particular, this Congress is going to do everything within its powers to keep the CFPB on a short leash, if not try to eliminate it altogether.