Outgoing Republican Senators Bob Corker and Jeff Flake spent much of Tuesday feuding with and railing against President Trump, but they stepped back into the party line for a late-night vote — perhaps literally while you were sleeping. And for extra drama, Mike Pence cast the deciding vote on a major victory for credit cards and banks. How will this decision affect you?
What Happened? Senators Lindsey Graham and John Kennedy were the only Republicans to vote against the measure, which would have done away with an arbitration rule within the Consumer Financial Protection Bureau. Set to take effect in 2019, the rule would have made it easier for people sue their banks and credit card companies (in the event of financial abuses) by banning most of those notoriously fine-print arbitration clauses within contracts and agreements. The end result has handicapped the most powerful tool in consumers’ collective arsenal. That is, the Senate has prevented consumers from joining together in class-action lawsuits — which can be used to hold companies accountable and spur corporate policy changes — against banks.
Why Did Consumer Groups Oppose The Repeal? Consumer groups and Democratic senators cited the recent Wells Fargo and Equifax scandals as examples of why the option of class-action suits is necessary to hold financial providers accountable. In the case of Wells Fargo, millions of fake accounts were created due to corrupt internal practices and a lack of oversight. With Equifax, up to 143 million Americans saw their social security numbers and other personal information leaked. (Further, part of Equifax’s sign-up process for subsequent monitoring and protection actually required consumers to agree upon arbitration for future related disputes.) Ultimately, consumer groups argued that the binding nature of arbitration usually results in decisions that favor corporations, not the consumer.
Why Did Republicans Pass This Vote? The GOP has never been a fan of the Consumer Financial Protection Bureau, which reached independent agency status through the Dodd-Frank Act. And the banking industry has had their lobbyists out in full force to persuade Republicans that the rule would have allowed an uncontrollable amount of class-action lawsuits to take over courtrooms. These lobbyists argued that the everyday consumer would have to pay for these suits in the form of higher prices. Sen. Elizabeth Warren (D-MA) spoke critically of “[b]ank lobbyists … crawling all over this place, begging Congress to vote and make it easier for them to cheat consumers.”
What Was The White House’s Reaction? Trump was thrilled to see the rule repealed, and the White House statement claimed that this move would benefit consumers: “Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy.”
How Will This Most Affect You? Ironically, the effect will be the opposite of what Republicans claimed to desire. As highlighted by the Washington Post, a single consumer isn’t likely to bother with arbitration in the event that a bank employee starts creating fake accounts to meet sales initiatives or in the case of an unfair overdraft fee or charge. However, if the abuse takes place against thousands of consumers, the rule would have allowed people to band together as part of a class-action suit, which would have forced banks to pay a settlement and probably change the offending practice. With the rule’s repeal, banks are now much more free to engage in such abuses without fear of repercussions. In other words, the next time you get hit with a ridiculously large bank charge, you’re probably stuck with it.
(Via Bloomberg, New York Times, Washington Post, LA Times & WhiteHouse.gov)