Congress handed Wall Street a huge victory last week when the Senate voted to overturn a rule that would have barred banks from using so-called “forced arbitration” clauses to prevent customers from banding together in class-action lawsuits. Such clauses are in the fine print of most mortgage loans, credit card agreements and other financial instruments, and their sole function is to rig the playing field against the little guy when disputes arise. The banks know that unless individual consumers join with hundreds or even thousands of others with similar complaints, the public doesn’t have a prayer of prevailing against Wall Street’s armies of corporate attorneys. So they’ve simply changed the rules in a way that cuts consumers off at the knees.
The regulation promulgated by the Obama administration’s Consumer Financial Protection Bureau and scheduled to go into effect in 2019 was meant to protect consumers against having to go it alone when banks and financial institutions violate their rights. Presently those who find themselves in that position have two choices: Either join with other consumers to share the expense of protesting their treatment or allow the case to be settled quietly out of court by an ostensibly neutral arbitrator — who often turns out to have been bought and paid for by the very banks that cheated them.
The banks are counting on the fact that any individual consumer determined enough to sue on his or her own will quickly find the process so lengthy and expensive that most will choose to eat their losses rather than slug it out with the banks’ white-shoe law firms (or throw themselves on the tender mercies of kangaroo court-like arbitration proceedings). By preventing the new rule from going into effect, Wall Street and its allies in Congress have virtually ensured that no one can seriously challenge their business practices or force them to change.
Those who thought the Republican Party and the president who calls himself a populist would ever stand up for the little guy when it came to protecting consumers from corporate rapaciousness should be outraged by this naked partisan power grab. Yet its Republican apologists argue that reform would have opened the door to a flood of frivolous lawsuits that would accomplish little more than to line the pockets of trial lawyers looking to win huge settlements at the banking industry’s expense. Clauses that force consumers to forego the courts and engage in arbitration have been used by banks and credit card companies for decades, they say, because they protect institutions against false or fraudulent claims.
But opponents of the change rightly point out that it allows the financial industry to circumvent the courts and bar people from pooling resources to make their voices heard. Barring class-action lawsuits takes away one of the few tools that individuals have to fight predatory and deceptive business practices by giant corporations. There’ve been countless cases in which arbitration clauses have prevented individuals from going to court to press claims of financial gouging and skulduggery by large corporations, and they argue that class actions aren’t just about the size of payouts but also about forcing companies to change the way they do business. Since 2009 large banks have had to pay more than $1 billion to settle class action lawsuits in which they were accused of questionable business practices.
It’s clear that Congress intends to keep the rules rigged against consumers as part of a broader push by GOP congressional leaders and the White House to roll back the financial reforms enacted by the Obama administration in the wake of the 2008 economic meltdown. The Consumer Financial Protection Bureau, whose powers are being systematically stripped by the Trump administration, had also been cracking down on debt collectors, the student loan industry and payday lenders. All those initiatives potentially are now subject to reversal. In a statement, Richard Cordray, the director of the consumer bureau who President Trump is expected to replace next year, called the Senate vote “a giant setback for every consumer in this country,” and warned that companies like Wells Fargo and Equifax, both of which have used arbitration clauses to try to ward off scandals involving their customer service policies, “remain free to break the law without fear of legal blowback.” If the Republican-controlled Congress and White House have their way, Wall Street’s big victory last week will also mean big losses for consumers going forward.
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