Wells Fargo Tower, Portland, Oregon. Credit: Barry Caruth
Wall Street’s Washington Friends Aim to Kill New Consumer Protection
Many lenders trick customers into signing contracts that forbid them from joining class action lawsuits over financial fraud. Republicans want to keep it that way.
Blogging Our Great Divide
July 20, 2017
With the ink still wet on a new regulation to protect the little guy or gal against big financial predators, congressional Republicans are already moving to get rid of it.
On July 10, the Consumer Financial Protection Bureau finalized a rule to prohibit banks, credit card companies, and other lenders that break the law from stripping customers of the right to hold them accountable in class action lawsuits.
The regulation is in response to the “ripoff clauses” that financial firms often bury in the fine print of contracts, forcing consumers to seek redress for misconduct on their own through secret arbitration proceedings. Most people only learn about these clauses when they become the victim of illegal financial behavior.
Not surprisingly, very few people who get ripped off by fraudsters even bother spending their time and energy on arbitration. According to the CFPB, only 75 consumers with claims under $1,000 pursued arbitration during the three-year period 2010-2012. We’ll never know how many other wronged consumers just dropped their complaints, allowing financial criminals to keep billions in stolen money.
A wide array of public interest organizations took about five minutes to celebrate the new regulation before bracing for the Republican blowback. They included racial justice, consumer rights, Wall Street reform, and labor groups, as well as a coalition representing military service members.
By leveling the playing field between corporations and individuals, this rule is an important step towards addressing the economic inequality that is so closely intertwined with racial injustice.
Todd Cox, NAACP Legal Defense Fund Policy Director
Todd Cox, Policy Director of the NAACP Legal Defense Fund, laid out the stakes for ordinary Americans, and people of color in particular: “this rule will protect countless Americans from exploitation, fraud, and abuse, including Americans of color who continue to face systemic discrimination as they seek to receive credit, secure fair loans, and purchase any number of other financial products,” Cox said. “By leveling the playing field between corporations and individuals, this rule is an important step towards addressing the economic inequality that is so closely intertwined with racial injustice.”
Of course not everyone welcomed the new regulation. Wells Fargo CEO Tim Sloan popped on a call just a few days after the CFPB’s announcement to assure investors that actions against the new consumer protection were very likely. The Wall Street bank is without a doubt the most notorious user of forced arbitration clauses. In fact, it was this practice that allowed the bank to get away with its massive fake account scam for so many years. When the scandal blew up last year, it came out that some Wells Fargo customers had been trying to sue the bank over phony accounts since at least 2013, but their efforts did not come to light because of secret arbitration.
In the end, Wells Fargo was able to get away with creating as many as 3.5 million accounts without customers’ authorization. The bank continues to try to block the customers they’ve already defrauded from having their day in court. And so it should come as no surprise that CEO Sloan is hopeful that Wall Street’s friends in Congress will take action to protect the bank from facing class action suits in the future. On the earnings call with investors, Sloan said, “My guess is that based on the feedback that we’ll see legislative or administrative and legal action against it.”
Indeed, legislative action may be swift. The House of Representatives is reportedly planning to vote within days to eliminate the regulation, and Senate action may follow soon after. To move quickly, Republicans are planning to invoke the Congressional Review Act, which allows Congress to fast-track the repeal of recently approved regulations. Under this procedure, there are limits on the time allowed for debate and only a straight majority vote is needed in both chambers. Worse yet, if the rule is repealed, the CRA blocks regulators from ever issuing anything else like it without Congressional authorization.
If Republicans succeed in killing the new arbitration regulation, banks like Wells Fargo can rest assured that the legal playing field will remain heavily tilted in their favor.