Because the Sixth and Seventh Amendments of the U.S. Constitution are apparently less important than making sure that banks, credit card companies, student loan companies, and other financial services be allowed to behave badly with impunity, the House of Representatives has voted to overturn a new federal regulation that would have helped American consumers hold these companies accountable through the legal system.
In a largely party-line 231-190 vote this afternoon, the House passed a Congressional Review Act resolution that, if also adopted by the Senate and signed by the President, would overturn recently finalized rules from the Consumer Financial Protection Bureau.
Those rules seek to curb the use of “forced arbitration” in many consumers’ financial contracts. These arbitration clauses dictate that any legal dispute between the customer and the bank must be resolved outside of the legal system. Instead, these matters — no matter the scope of the allegation — must go through a closed-door arbitration process, where the results are often confidential, so there is no public record of the alleged wrongdoing.
Additionally, most arbitration clauses include a ban on class actions — even through arbitration. So a bank could, for example, open millions of fake, unauthorized accounts in customers’ names, but then try to block all of those customers from moving forward as a plaintiff class. Rather, each of the millions of wronged customers is required to go through arbitration on their own. As a result, very, very few people ever enter into the arbitration process.
The Consumer Financial Protection Bureau’s new rule doesn’t bar affected companies from using arbitration clauses, but it severely limits their ability to use class action bans.
Last week, a group of heavily bank-backed lawmakers in both the House and Senate introduced Review Act resolutions to roll back the rule.
During debate in advance of today’s vote, GOP representatives repeatedly attempted to claim that arbitration is superior to class actions because the typical payout of an arbitration dispute is significantly higher (around $5,000) than in a class action (around $32).
Rep. Dave Trott of Michigan belittled class actions, pointing to a $3.99 settlement he recently received. What the congressman didn’t mention is that he was likely one of thousands — potentially millions — of people who received that $3.99 settlement. To him, it was the price of a latte, but to the company that had to pay that settlement, it was a large financial spanking.
Democratic representatives responded to this repeated criticism by noting that arbitration cases tend to involve small numbers of customers with high-dollar disputes, whereas class actions often involve large numbers of wronged customers with small-dollar issues.
Rep. David Cicilline of Rhode Island mocked the GOP contention that forced arbitration is pro-consumer.
“If these provisions were so beneficial, why do you have to sneak them into the contracts?,” asked Cicilline.
Maryland Rep. John Sarbanes questioned the GOP’s reason for trying to undo these protections.
“Who back home is asking for this?” asked Sarbanes. “Who is coming to the town hall and asking for you to repeal this?”
In the end, only one Republican — Walter Jones of North Carolina — voted against repealing the CFPB rule. No Democrats strayed across the aisle to vote in favor of repeal.
In his closing remarks before the vote, Rep. Jeb Hensarling (TX) — whose campaign received nearly $2 million from financial services companies last year — made the dubious claim that arbitration clauses provide consumers with a “choice” between arbitration and the court system.
The problem is, that this is not at all true in practice. Arbitration clauses generally say that either party in the contract can elect to enter into arbitration, and that the other party must abide by that decision. So yes, if a customer chooses arbitration, they get arbitration, but if a company wants arbitration, the customer has no “choice” to speak of. While this might seem harsh, the Supreme Court has repeatedly upheld that aspect of arbitration clauses.
Even though these resolutions to overturn the CFPB rules face huge opposition from consumer advocates, there was little hope that the Republican-dominated House would vote against passing the bill. The Senate resolution may face a tougher fight, as the GOP can only afford to lose two votes to the opposition.
“House Republicans have turned their backs on their constituents for Wall Street’s benefit,” said Christine Hines, legislative director at the National Association of Consumer Advocates. “Instead of supporting a reasonable rule that helps consumers get back their day in court, the U.S. House sided with big banks, which for too long have used their fine-print contracts to take Americans’ rights away.”
“By voting to overturn the CFPB’s arbitration rule, Republicans in Congress are siding with predatory banks, payday lenders, credit card companies and the financial industry against Main Street Americans, and are choosing to be on the wrong side of history,” adds Lisa Gilbert, Vice President of Legislative Affairs, Public Citizen. “Big banks, the financial industry and their allies in Congress are trying to overturn the CFPB’s rule because it will deprive them of a means to rip off consumers.”
“Consumers shouldn’t be forced to give up their legal rights when they sign up for a loan or open a bank account,” says our colleague George Slover, senior policy counsel for Consumers Union. “The CFPB’s rule ensures they can join with others and have their day in court if they’ve been harmed by their bank or credit card company. Repealing the forced arbitration rule will make it harder for consumers to hold financial firms accountable for breaking the law or treating their customers unfairly.”