The last thing Republicans on Capitol Hill apparently want the Consumer Financial Protection Bureau to do is actually protect financial consumers.
That would explain the angry GOP reaction whenever the bureau announces new rules, as it did last week, to stop big financial institutions from imposing mandatory arbitration agreements on consumers who have legal grievances — a way to sidestep the legal system.
Traditionally, arbitration is often unfair and designed to work to corporations’ advantage — and not the little guy. And that is the whole reason businesses increasingly require it.
The thing is that arbitration agreements can specifically prohibit customers from banding together and filing class-action lawsuits.
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For years, banks have strongly opposed banning arbitration causes, arguing that arbitration is a more efficient way of handling small disputes and that class-action lawsuits largely benefit the lawyers handling the cases.
But there’s also a bottom-line impact: Banks could be exposed to billions of dollars in lawsuits from customers.
The bureau is responding to thousands of nightmarish reports about the many ways banks, lenders and credit-card companies cheat consumers and then use legal trickery to avoid being held accountable in court.
And why have customer been suing? Banks have:
▪ Issued credit cards to customers without their consent;
▪ Signed clients up for loans or accounts that they didn’t ask for, on terms to which they never agreed;
▪ Some have imposed fees, boosted interest rates on loans or modified mortgage terms without notice or consent.
When customers complained, they were frequently told to read the fine print of their agreements, which requires all disputes to be resolved through arbitration.
But the arbitration process can be expensive for individuals, who must hire their own attorneys to confront a corporate behemoth.
The Consumer Financial Protection Bureau, established in the wake of the 2007-2008 financial meltdown, now says class-action lawsuits may go forward anyway.
This is only fair. If banks and other credit providers abuse customers as a group, those harmed should be able to fight back as a group.
Had the CFPB not taken its action, banks and credit providers would be able to continue abusing and bullying consumers with impunity.
Key House Republicans believe, however, that it’s the CFPB, not banks and credit companies, that needs restraining. “The rule should be thoroughly rejected by Congress,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, referring to the new arbitration policy.
Rep. Ann Wagner, R-Missouri, has waged political warfare against CFPB director Richard Cordray and his bureau’s independent investigatory and regulatory authority. “Nothing embodies the Washington-knows-best mindset more than the Consumer Financial Protection Bureau,” Wagner said in March.
Exactly whom lawmakers are fighting for isn’t quite clear, but it’s sure not consumers victimized by financial corporate behemoths.
All the companies want is their unfair advantage. It’s strange the lengths to which some in Congress will go to fight against the little guy.
This editorial first appeared in the St. Louis Post-Dispatch.