Congress Should Stand on the Side of Everyday Consumers — Not Big Banks
In the wake of recent efforts to reverse historic progress on healthcare and release of indefensible budget proposals, you may have missed important news in the fight for equal access to justice. In July, the Consumer Financial Protection Bureau (CFPB) issued a final rule that stopped banks and other financial institutions from forcing customers out of court and into a one-sided dispute resolution process known as arbitration.
Congress could soon strip Americans of their right to join together in a lawsuit and against banks that have cheated them.
In a move clearly inspired by Wall Street, not Main Street, the Senate is poised to block the arbitration rule, advancing a similar vote taken by the House on July 25th. If passed, the resolution would almost certainly be signed by President Trump.
The Sargent Shriver National Center on Poverty Law and several of its Legal Impact Network partners have supported the rule since it was first proposed. In comments to the CFPB, we stressed that low-income consumers, who do not have the means to pursue individual actions, especially need the right to join in class action cases. Court cases not only make it possible for them to receive compensation, but also to hold big institutions accountable for harming thousands of people.
The arbitration rule is a reasoned policy choice that has been years in the making.
The CFPB proposed curbing forced arbitration in financial products and services after a lengthy rule-making process, including an exhaustive study that analyzed several years’ worth of data. The CFPB found that that 1.6 million consumers who participated in class actions over the course of five years recovered a total of $2.2 billion. But over two years during the same period only 32 people nationwide were able to get any recovery through arbitration. Those individuals collectively received a paltry $172,433 in relief.
Consumers need the arbitration rule, and they need it now.
Recent scandals such as those involving Wells Fargo Bank, which fraudulently opened bank accounts and charged consumers debit card fees, point to this need. Without class action litigation, consumers will likely lose their ability to receive fair compensation for being defrauded. Most consumers do not win in arbitration, and even people who are “successful” in their arbitration cases usually walk away short-changed.
Moreover, court orders are much more likely to incentivize banks and financial institutions to change their behavior. It is virtually impossible to stop bad actors from harming people using arbitration alone.
The Senate’s vote is our best chance to protect people from “rip off clauses” in contracts for financial services.
While wealthy companies and their lobbyists recently have made headway in undermining consumers’ rights, a few things are still working for everyday people. Polling shows that the CFPB’s rule targeting forced arbitration is popular, with three quarters of likely voters supporting the CFPB and its mission, and two-thirds of those voters in favor of the arbitration rule. And, as we have seen recently in the healthcare debate, when constituents make their voices heard, Congress listens.
