House Votes Down CFPB Rule Meant to Protect Consumer Rights

Class Actions
Arbitration Clause

By Sean Lally, Staff Writer

While the Senate was in the news almost full time trying in vain to pass health care legislation, the House GOP has had some success while out of the limelinght. In a party line vote, Republicans successfully passed a resolution (HJ Res. 111) that could squash a Consumer Financial Protection Bureau (CFPB) rule finalized earlier this month. The resolution passed according to the procedural particularities of the Congressional Review Act, which has been used to rescind over a dozen other rules throughout the year.

The Rule

The regulation, which was set to go into effect next year, would prohibit the inclusion of arbitration agreements in most contracts drawn up by banks and credit card companies. These agreements have been used over the past several years to prevent class action suits and to funnel most complaints into a black-box arbitration where plaintiffs rarely win.

A Sketchy History

In 2015, the New York Times published a report sketching the unsavory story of arbitration agreements, the introduction of which constituted “among the most profound shifts in our legal history,” according to William G. Young, a federal judge. Young continued in his interview with NYT: “Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach.”

The winding genealogy of binding arbitration involves characters like Chief Justice John G. Roberts who tried (and failed) to convince the Supreme Court to consider mandatory arbitration when he was lawyering for Discover Bank. Then, after climbing to the top of the judiciary, he oversaw decisive rulings in 2011 and 2013 in favor of class action bans.

Lacking official government data, the Times did its own hunting and sorted through over 1,100 class action suits. Reporters found that four out of every five class action cases that corporations wanted to move to arbitration were decided in favor of corporate defendants.

CFPB Study

And according to a study carried out by the CFPB in 2015, consumers have been in the dark about their relative disadvantage. Three out of every four consumers surveyed had no idea they were subject to arbitration agreements and barely seven percent of those with arbitration provisions knew they couldn’t bring complaints to a proper court.

Of 1,060 arbitration cases between 2010 and 2011, consumers won less than $190,000 in debt-related payments and $175,000 total in damages, the study found. These numbers are a paltry sum when compared to the vast amounts of money won by consumers in class action suits. During the five year period of the study, analysts found that $1.1 billion was awarded to at least 34 million claimants in class action suits. The CFPB observed that these numbers don’t account for the future consumer savings related to corporate changes imposed by class action cases.

Full Steam Ahead

Those in favor of these agreements have been working very hard to maintain the ban on class actions. According to a Public Citizen report, the US Chamber of Commerce submits a briefing or files a lawsuit several times a week in order to fight consumer advocates.

And financial companies have given upward $100 million to legislators to advance corporate interests, according to a recent analysis from Public Citizen. This might help explain the unwavering support of Republican Senators seeking a repeal of the CFPB rule.

Consumer Advocates Aren’t Happy

The imminent demise of the rule has been met with dismay by consumer advocacy groups

Michael Best of the Consumer Federation of America expressed his discontent with the recent vote in a press release: “We are disappointed that the House has voted to disapprove the arbitration rule which will restore consumers’ right to join together in court by prohibiting class action bans.” He continued, “But we thank those members of the house who stood up for consumers by standing up for the rule and call on all Senators who stand for consumer rights to defend the rule when it is up for a vote in the senate.”

Democratic Senator Elizabeth Warren, who has been a vocal opponent of these practices, had this to say in response to the vote, “If you're going to cheat people, there's going to be some accountability. That's what this provision is all about." 

Now the resolution will go to the Senate where there may be a small but mighty resistance from certain Republicans. For now, it looks like consumer advocates have their work cut out for them.

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