One year after tie-breaking vote that killed CFPB’s arbitration rule, consumers still need their rights back

by Christine Hines

Below is the introduction to a policy brief on the one-year anniversary of the demise of the CFPB arbitration rule and call for more action on consumers’ access to court:

Last October, Congress had the chance to stand up for American consumers and support financial rights and protections that the Consumer Financial Protection Bureau had recently restored in its arbitration rule. But instead, the lawmakers abetted bankers and the big-business lobby when they voted to repeal the rule. A year later, consumers in the financial marketplace remain vulnerable to corporate wrongdoing because bankers and predatory lenders can and are continuing to erase their customers’ right to go to court.

For example, in a case decided this February, payday lender Cash Biz used the criminal court system to threaten and encourage criminal prosecution of its Texas customers to force repayment of loans, the Texas Supreme Court concluded that using the judicial process in this way was not a “waiver” of Cash Biz’s forced arbitration clause and class action ban in its customer loan terms. Cash Biz would still be allowed to block customers from banding together in court even though it had itself aggressively used the public court system against them.

What happened to Cash Biz’s customers is now common in the financial marketplace. Through forced arbitration clauses, ordinary consumers’ routinely have their rights purged in their transactions with big banks, lenders, credit reporting agencies, debt collectors, and other entities.

As it searched for ways to level the playing field for consumers who were devastated by the 2008 financial crisis, Congress created and tasked the CFPB to study the problem of forced arbitration clauses in consumer financial contracts and write a rule to address it. The bureau’s rule, issued in July 2017, would have restored consumers’ right to band together in class actions, empowering them to seek remedies in court for losses caused by bad actors in the financial sector.

But nearly a decade after the economic meltdown, lawmakers with a tie-breaking hand from U.S. Vice President Mike Pence, voted simple majority votes in favor of a Congressional Review Act resolution to kill the new CFPB rule. In doing so, they turned their back on justice, American consumers, and the exhaustive, years-long, taxpayer-funded, public rulemaking process.

Adding to the frustration of this striking retreat from consumer protection, the vote took place amid the ongoing public scandals of two large financial entities: Wells Fargo & Co. and Equifax, Inc., avid users of forced arbitration clauses and class action bans against their customers. Both had come under intense public scrutiny for their reckless, and in the case of Wells Fargo, fraudulent mistreatment of consumers’ private information.

Wells Fargo’s hardline and cynical sales tactics led to the opening of millions of sham accounts for customers and non-customers without their consent. Meanwhile Equifax’s inadequate security practices led to a data breach that put the private information of 148 million people at risk. The widespread financial harm resulting from the entities’ delinquency reverberated across the country. Consumers needed protection more than ever.

As implementation of CFPB’s arbitration rule grew imminent, Equifax and Wells Fargo’s extensive wrongdoing and the ensuing public outrage emerged as a timely, compelling argument for keeping the CFPB’s new safeguard. Yet, the financial industry and big-business lobby’s longstanding influence over Congress outweighed consumers’ interests, and secured just enough votes to kill the arbitration rule.

The rule would have ended class action bans in forced arbitration clauses beginning with financial contracts entered into in March 2018. Without it, consumer financial cases over the past year continue to show an unevenly applied justice system that favors corporate interests. The fate of consumers’ claims against financial institutions hinges, not on their merits, but on a court’s interpretations of the minute details of an arbitration clause.

At the first opportunity, a new Congress should review the massive amount of collected evidence on forced arbitration and its continuing harm to consumers. It should also pass laws that will meaningfully restore Americans’ right to go court, and that shield federal regulatory protections, like the arbitration rule, from political whims.