If the Consumer Financial Protection Bureau is dying, at least it's going out with a bang
By The Times Editorial Board
Jul 12, 2017 | 6:00 AM
Defying the deregulatory push from the Trump administration and the GOP-controlled Congress, the Consumer Financial Protection Bureau rolled out a much-needed rule this week that bars banks and other financial services companies from forcing customers to take disputes to arbitration instead of banding together to sue.
At least, that's what the rule will do if it's allowed to go into effect in a few months as scheduled. Some Republicans in Congress, however, are already readying legislation to cancel the rule preemptively and stop the agency from ever adopting anything like it. But that may be the least of the bureau's problems at the moment. The House has passed a bill (HR 10) that would all but gut the bureau, removing crucial regulatory tools and enforcement powers as well as ending its independence.
Nevertheless, the arbitration rule is a timely reminder of why we need a strong and independent CFPB tackling problems that other financial regulators have ignored. Arbitration is fine as an optional alternative to lawsuits, but banks and other financial services companies have been routinely requiring customers to submit any and all disputes to binding arbitration. They've then used those clauses to stop customers from joining forces in class actions, which makes it pointless for consumers to pursue claims when their losses are smaller than the cost of an arbitrator. In effect, that gives companies carte blanche to cheat and defraud on a wide scale, as long as they don't take very much from any individual.
A good example is the multi-year fraud that Wells Fargo perpetrated on thousands of customers. Pressured by their supervisors to open more accounts, Wells Fargo salespeople created up to 2 million credit-card and other accounts in their customers' names without their consent or even their knowledge. Then, when outraged customers tried to bring lawsuits, Wells has argued (persuasively in at least two cases) that the complaints should be dismissed because of the arbitration clauses customers had to agree to when they initially opened accounts at the bank.
Defenders of forced arbitration argue that frivolous class-action suits drive up everyone's costs. But the solution to that problem is to adjust the rules for such claims, not to deny people the only effective means they may have to redress their complaints — a right guaranteed by the Constitution.
Congress created the CFPB in 2010 as part of its response to the reckless and predatory practices that caused much of the global financial system to crash, bringing many countries' economies down with it. If that's not enough reason to preserve the bureau, its role as a protector of fundamental rights should appeal to the self-proclaimed "constitutional conservatives" on Capitol Hill. How they end up treating this rule, and the bureau itself, will measure whether they value their constituents more than corporate profits.