Whose Side Are They On: Main Street Consumers or Wall Street Banks?

One of the major battles in Congress this fall will be a fight over a regulatory repeal measure that will have lasting ramifications for Americans' constitutional rights. That measure, if it passes and is signed by the president, would take away consumers' right to challenge wrongdoing by financial companies in court.

This note provides basic information about the consumer right that is at risk and why it matters, the process Congress is using to try to repeal it and the current state of play. Please cover this important issue before a vote takes place.

Forced Arbitration "Rip-Off" Clauses

Financial companies have systematically taken away consumers' right to go to court by hiding forced arbitration "rip-off" clauses in the fine print of take-it-or-leave-it contracts. These clauses (PDF) block consumers from joining class-action lawsuits against corporate wrongdoing and push disputes into secretive arbitration proceedings rigged to favor financial companies. The average consumer forced into arbitration ends up paying more than $7,700 to the bank or lender, according to a report from the Economic Policy Institute.

Forced arbitration may be the single most important tool that predatory banks, payday lenders, credit card companies and other financial institutions have used to escape accountability for cheating and defrauding consumers. The secretive nature of arbitration proceedings - by design - conceals wrongdoing from regulatory authorities. Wells Fargo's defrauded customers were blocked from going to court and unable to share their stories - allowing the bank to continue its fraudulent practices for years before getting caught.

On July 10, the U.S. Consumer Financial Protection Bureau (CFPB) took a critical step toward protecting consumers by finalizing its long-awaited arbitration rule, which restricts rip-off clauses in consumer financial contracts and allows customers to join together in court to hold banks and lenders accountable when they break the law. Yet, even as a new Wells Fargo scandal seems to break almost every month, Congress is attempting to reinstate secret arbitration as the law of the land.

The Need For Protections Against Rip-Off Clauses

The result of a congressional directive and five years of careful study (PDF), the arbitration rule was proposed in May 2016 after the CFPB's comprehensive 2015 study documented that forced arbitration effectively wipes out consumer claims. Wells Fargo's fraudulent accounts scandal demonstrates how rip-off clauses allow corporations to hide and get away with egregious misconduct. Even after pledging to make things right, the bank continues to use forced arbitration to block customers from suing over fraudulent accounts and the bank's other crimes.

Letting banks and other financial institutions rip off customers with impunity is a savage attack on American consumers. By voting to overturn the CFPB's arbitration rule, Republicans in Congress are choosing predatory banks, payday lenders, credit card companies and the financial industry over Main Street Americans and putting themselves on the wrong side of history.

Forced arbitration is particularly harmful to military servicemembers, who are in no position to individually challenge a financial institution's illegal or unfair practices due to their limited resources, frequent relocations and deployments overseas. Class actions are the only way many servicemembers can enforce their rights and obtain justice.

With the CFPB rule in place, consumers still can choose to pursue arbitration if they prefer. But there is absolutely no consumer benefit in being forced into arbitration and losing the right to file a class-action lawsuit; these suits return $440 million to 6.8 million consumers every year, after attorneys' fees and court costs.

The Congressional Review Act

Just 15 days after the CFPB finalized the arbitration rule, the U.S. House of Representatives passed a Congressional Review Act (CRA) resolution of disapproval striking down the rule. The CRA allows Congress - by majority vote in both chambers, with limited debate, no possibility of a filibuster and the president's signature - to overturn recently issued public protections. Making matters worse, the CRA blocks agencies from issuing rules that are "substantially the same" without express authorization from Congress.

The CRA process gives the U.S. Senate until roughly the end of October to act.

To date, Republicans in Congress and President Donald Trump have used the CRA to strike down 14 regulatory protections as payback to their corporate donors, who spent more than $1 billion to get their way. Seven months into the Trump administration, these 14 resolutions remain the only legislation of consequence the president has signed other than Russia sanctions (which Trump signed reluctantly). The arbitration rule is at serious risk of becoming the 15th protection repealed using the CRA's expedited process.

The financial industry has given more than $100 million in campaign contributions to Senate Republicans co-sponsoring the CRA resolution, according to an analysis (PDF) from Public Citizen. These contributions may explain why Republicans in Congress are willing to aid and abet bank rip-offs of their own constituents (PDF) - even after many of these same politicians condemned Wells Fargo for its litany of financial abuses and even in the face of polling showing that voters in both parties strongly support protections against rip-off clauses.

The State of Play

According to press reports, U.S. Sen. Lindsey Graham (R-S.C.) opposes the CRA resolution overturning the arbitration rule, and U.S. Sens. Susan Collins (R-Maine), John Kennedy (R-La.), and Lisa Murkowski (R-Alaska) remain undecided as to how they will vote. Every senator who wants to be able to look a Wells Fargo customer in the eye should oppose repeal. Siding with consumers should be an easy choice.

With so many pressing issues on the congressional docket this fall - government funding, the debt ceiling, renewal of the Children's Health Insurance Program and the National Flood Insurance Program, and more - it would be a relief to tens of millions of American consumers if these senators never had to make a choice.

Senators are expected to return to Washington, D.C. on September 5, concluding the August recess. From that point until late October, the CRA resolution to repeal the arbitration could be brought to the floor for a vote at any time. If this CRA resolution follows the timetable of similar resolutions voted on in the spring, there will be less than 24 hours of advanced warning when a Senate vote is scheduled.

In late March, Americans across the ideological spectrum were shocked to learn that Congress had repealed broadband privacy protections and dismayed that the public hadn't been warned in advance about such a flagrant and unpopular corporate power-grab. The CRA's lightning-fast repeal process allowed Congress to act before the press caught wind of what was happening. It easily could happen again.

The time to cover forced arbitration is now. Please contact any of the individuals listed above to speak with an expert.