By Stephanie K. Mann, J.D.
Following the Senate’s passage of a Congressional Review Act Resolution (H.J. Res. 111) to overrule the Consumer Financial Protection Bureau’s arbitration rule, multiple legislators have voiced their support and opposition for the action. Once signed by President Trump, the rule will be prevented from taking effect, and will also bar any federal agencies from enacting similar rules without congressional action.
The arbitration rule, which was released on July 10, 2017, bans pre-dispute arbitration clauses in consumer financial product contracts if those clauses prevent class actions. Under the rule, arbitration clauses would only be allowed if their application is restricted to individual claims.
Victory for consumers. Commending the Senate for joining the House in “fighting for consumers and for draining the bureaucratic swamp of yet another political regulation,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called the vote a victory for consumers and a “rejection of the unchecked, unconstitutional and unaccountable CFPB.” The legislator stressed that laws and regulations should be written by elected representatives, rather than “unelected and unaccountable bureaucrats.”
Believing that a ban on arbitration clauses would result in lower reward payments for wronged customers and higher credit costs, Sen. Tom Cotton (R-Ark) argued that there is little evidence to demonstrate that class action suits stop the behavior that they intend to punish. The arbitration rule “was wrong on the merits and, worse, an abuse of authority by the CFPB,” said Cotton.
Customers end up paying. According to Sen. Sherrod Brown (D-Ohio), legislators have a duty to “look out for the people we serve—not Wall Street banks and corporations trying to scam consumers.” However, forced arbitration takes this power away from ordinary people, and gives it to big banks and Wall Street companies that already have an unfair advantage.
Brown highlighted an Economic Policy Institute study that people who went into arbitration with Wells Fargo, and found that, on average, they ended having to pay the bank almost $11,000. Additional studies show that Wall Street and other big companies win 93 percent of the time in arbitration. Regular people don’t stand a chance against those numbers.
Siding with banks. Arguing in favor of the arbitration rule on the floor of the Senate, Sen. Elizabeth Warren (D-Mass) reminded the legislators about recent history in which Wells Fargo creates 3.5 million fake accounts, charging customers fees and ruining credit scores and Equifax lets hackers steal personal information on 145 million Americans, putting nearly 60 percent of American adults at risk of identity theft. However, because millions of consumer financial contracts include a forced arbitration clause, all consumers are forced to go to arbitration by themselves, rather than joining with other customers in court.
According to Warren, anyone who votes to reverse the arbitration rule, “is saying loud and clear that they side with banks over their constituents—because bank lobbyists are the only people asking Congress to reverse the rule.” The Military Coalition, which represents more than 5.5 million veterans and servicemembers, supports the arbitration rule because "forced arbitration is an un-American system wherein service members' claims against a corporation are funneled into a rigged, secretive system in which all the rules, including the choice of the arbitrator, are picked by the corporation," and warns that "the catastrophic consequences" these forced arbitration clauses “pose for our all-voluntary military fighting force's morale and our national security are vital reasons” to preserve the rule.
In addition, Warren points to the AARP, which represents nearly 40 million American seniors, who believes that the CFPB rule should be preserved because it “is a critical step in restoring consumers' access to legal remedies that have been undermined by the widespread use of forced arbitration for many years.” Older consumers are at increased risk of financial scams so the “AARP supports the availability of a full range of enforcement tools, including the right to class action litigation to prevent harm to the financial security of older people posed by unfair and illegal practices.”
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