The U.S. Chamber of Commerce may sound like a government agency or a quaint organization of helpful business leaders, but it is, in fact, the single largest lobbying organization in the country, spending nearly $104 billion last year alone on lobbying, about $40 billion more than any other group. The Chamber also thinks the U.S. Constitution is mistaken, that the Sixth and Seventh Amendments don’t apply to consumers; that the mere fact you are a customer should strip you of your constitutional right to sue banks like Wells Fargo or credit bureaus like Equifax when they open millions of bogus accounts in customers’ names or fail to protect sensitive information for more than 100 million people.
And how does the Chamber of Commerce plan to stop the American people from being able to bring lawsuits? By doing the one thing it doesn’t want you to be able to do.
The Chamber of Commerce — along with dozens of others including the American Bankers Association, and the Financial Services Roundtable — have filed suit against the Consumer Financial Protection Bureau (an actual government agency, though there are some on Capitol Hill who would rather that weren’t so), trying to stop a Bureau rule that would limit banks’ and other financial services’ ability to strip wronged consumers of their right to a day in court.
In July, the CFPB finalized a new rule — the result of several years of research — that would restrict certain companies’ use of “forced arbitration.”
Forced arbitration is when a company inserts a paragraph or two into its customer agreement saying that all legal disputes must be handled outside the legal system. Instead, you must go through private, binding arbitration — a process that most Americans don’t even know exists, let alone understand the finer points of.
So if your bank screws up some paperwork and forecloses on your house by mistake, you don’t get a judge in an open courtroom with a docket and evidence that becomes part of the public record. Instead, you get an arbitrator — who may be very familiar with the bank and its attorneys — presiding over a closed-door process where the results are often confidential, the arbitrator’s decision can’t be appealed through the court system, and no precedent is set.
The second, and more insidious, aspect of most arbitration clauses is that they almost always also prohibit customers who have been wronged in the same way from joining their disputes together into one complaint — even through arbitration.
So, imagine you find out that the bank has been making this same foreclosure error all over the country. You and all the other victims can’t pool your resources and sue, or even arbitrate, as a class. Instead, you must each go through arbitration on your own. That means 1,000 victims could go into 1,000 different arbitration hearings and each come out with a different ruling despite having the same evidence and being wronged in the same way.
The CFPB rule doesn’t forbid the use of arbitration for individual disputes. Rather, it bars affected companies — the various financial institutions and services regulated by the CFPB — from using arbitration clauses to halt class actions.
Within days of the rule being published, a group of bank-backed House members, led by Rep. Jeb Hensarling — a top recipient of campaign cash from the savings & loan, commercial bank, finance, and payday loan sectors — introduced a Congressional Review Act (CRA) resolution seeking to overturn the rule.
The CRA gives Congress a 60-day window to effectively roll back any new federal regulations. If a majority in each chamber of Congress, and the President, all approve the CRA resolution of disapproval within that window, it’s like the rule never happened.
The actual “60 day” thing is a little complicated, as it’s neither 60 working days nor 60 calendar days. It does count weekend, but only when either chamber of Congress is not out for at least three days. Because D.C. effectively shuts down for the month of August — meaning that entire month doesn’t count — the best estimate for the 60-day window on the CFPB rule is around Nov. 4.
The resolution glided through the House on a nearly party-line vote in late June, with only one Republican — Walter Jones of North Carolina — voting against it.
However, the CRA resolution has stalled in the Senate, where Republicans only hold a slim 52-48 majority. There were reports earlier this week that Senate Majority Leader Mitch McConnell would try to quietly force a vote on the CRA this week while media attention would be focused on the Graham-Cassidy healthcare bill. However, between the last-minute failure of that bill and reports that the GOP was having trouble getting the 50 votes it would need, it remains unconsidered by the Senate.
Which is why, some critics suspect, the Chamber of Commerce has filed its lawsuit now, more than two months after the CFPB rule went on the books.
“What a brazen act of hypocrisy that the financial services lobby is bringing a lawsuit to block consumers from having their day in court,” says Amanda Werner, of Americans for Financial Reform and Public Citizen. “The protection they want to take away is the result of five years of diligent work by CFPB, including the most extensive study ever done on forced arbitration. This baseless legal challenge is a desperate move after their Senate repeal effort ran into massive resistance this week due to public outrage over Equifax and Wells Fargo.”
The actual arguments in the Chamber of Commerce complaint [PDF] have little to do with the regulation that the bank-backed groups are trying to overturn.
First, they make the well-worn claim that the CFPB’s structure is unconstitutional, even though neither the Constitution nor any of its amendments say anything about the proper structure of an independent federal agency. The CFPB’s structure is also an issue that is currently being considered by the full D.C. Circuit Court of Appeals.
The lawsuit also makes the claim that the multi-year study by the CFPB was “deeply flawed” and “improperly limited public participation.” Perhaps the most astonishingly stupid allegation in the lawsuit is the assertion that the CFPB is violating the very law that created the CFPB by “fail[ing] to advance either the public interest or consumer welfare.”
This is where the Chamber brings up its favorite talking point: That class-action lawsuits take a long time, consumers get small payouts, and the big money goes to the lawyers.
But as we’ve covered before, this all glosses over one of the main purposes of class actions: To hold companies accountable for their bad actions.
Say you found out your credit card company has been illegally charging you $1/month for the last six months for a credit-monitoring service you didn’t sign up for. You’re only out $6 and the bank will probably give it back to you.
But what if the bank has been doing this to 5 million other customers for the same period of time, and only reimbursing people when they noticed the charges? That’s $30 million collected illegally, and the bank should be held accountable for it. Yet, because you’re bound by an arbitration agreement, you can only dispute your $6; you can’t represent all the bank’s customers in a class action that could seek full redress and possibly additional damages. Yes, in the end each customer might only get a few bucks back, but those dollars add up to a huge financial lesson for the bank — and a warning for other banks to shape up.
Karl Frisch, of Allied Progress, is astounded by the idea that the banking industry is using the legal system to block consumers’ access to the legal system.
“Even Alanis Morissette couldn’t handle this much irony,” says Frisch. “The idea that the Chamber and big banking interests would take the CFPB to court to stop consumers from going to court when they’re screwed over by big banks, reeks of desperate hypocrisy. The fact is that the Chamber is fighting to deny consumers the right to take financial institutions – like Equifax and Wells Fargo – to court for wrongdoing. They are dead wrong and they deserve to be called out.”