Senate Republicans voted Tuesday night to overturn a new rule from the Consumer Financial Protection Bureau, which had banned forced arbitration clauses in financial service contracts. House Republicans had already passed it, so now it goes to Trump to become law.
As David Dayen argues, it is a big shiny gift to Wall Street, whose only purpose is to make it easier for big banks to defraud their customers.
Exactly two Senate Republicans — Lindsey Graham (S.C) and John Kennedy (La.) — voted against it, giving the tie-breaking vote to Vice President Mike Pence. Both Sens. Bob Corker (R-Tenn.) and Jeff Flake (R-Ariz.), who had been feuding with President Trump to the delight of gullible liberals, voted for it.
Forced arbitration is a contract stipulation that requires customers to go through a private legal process, overseen by an arbitrator (often hand-picked by the corporation), and these days typically include language banning class-action lawsuits as well. It is nothing more than a pseudo-legal system that is blatantly rigged in favor of the corporation. It's a way to provide the appearance of due process while all but guaranteeing that the corporation will win if a dispute does arise. Banning class actions, meanwhile, makes it senseless to sue over minor thefts — and thus makes it much easier for bankers to carry off huge heists consisting of a few dollars stolen from tens of millions of customers.
An Economic Policy Institute study found that customers got paid only 9 percent of the time in arbitration, while corporations did 93 percent of the time. And when consumers do get paid, they get vastly less than they do in class-action lawsuits.
It's important to be clear about what happened here. This is in no meaningful sense "deregulation." Conservatives like to pretend that contracts are an agreement between two private parties. What they really are is an agreement between two private parties enforced by the government. What this CFPB rule was effectively saying was the government would decline to enforce particular sorts of contract rules, just like they would if banks buried a clause in the fine print of a credit card contract demanding the organs of your children.
What banks want — and what they got from the Republican Party — is to be able to use the state to enforce their arbitration contract clauses. This is about using government coercion for private profits.
The purpose of the repeal could not be clearer: to enable Wall Street scum to rip off their customers. Pointless and often illegal fees are a big profit center for banks, and forced arbitration is a handy tool for avoiding, say, a $100 million class-action settlement for allegedly tricking customers into higher interest payments and payments, or a $300 million class-action settlement for alleged kickbacks for forcing homeowners into expensive insurance, or a $27.5 million class-action settlement for allegedly imposing illegal overdraft fees.
What's more, this is almost certainly just the first salvo of attacks against the CFPB, which is eating into Wall Street profits with their fines for stuff like secretly opening millions of fee-bearing accounts, or alleged "illegal cash kickbacks" on mortgages, allegedly violating mortgage servicer rules, or alleged "illegal credit card add-on practices." In a few months, it's likely banks will be able to go hog-wild with whatever grift they can think up, without either the most vigorous financial regulatory agency or their own customers able to stop them. Not only will none but zealots sue a gigantic bank over a few dozen or hundred dollars, even if they try it, they'll almost certainly lose!
All this should cement one thing in your mind: Less than a decade after the worst financial crisis since 1929, the Republican Party is owned lock, stock, and barrel by Wall Street. Their one true joy in life is clearing every possibly obstacle that stands between the biggest banks and your wallet.