The Hill Op-Ed: The House Recently Sided with Big Banks over Consumers

by Martha T. McCluskey

August 07, 2017

This op-ed originally ran in The Hill.

Did you read the fine print when you signed up for your credit card, a loan on your car, or a new checking account? Chances are, you missed an important provision called a "forced arbitration clause." This provision says that if the bank or credit card company has made a mistake it refuses to correct, or even cheated you out of money, you cannot sue to attempt to get your money back. Instead, you must pursue your claim in a secretive, privately run forum called "arbitration." In contrast to the courts, the arbitration process is full of pitfalls that discourage people from bringing claims, has rules that disadvantage consumers, and, for the few consumers who prevail, provides inadequate compensation. And that's exactly why banks and lenders force you to use it.

It's also why last month, the Consumer Financial Protection Bureau (CFPB) took an important step to crack down on the abusive use of forced arbitration, issuing a rule banning some of these clauses – those blocking consumers from joining class action lawsuits with thousands of other victims of the same illegal banking practices. The CFPB's final rule focuses on such lawsuits, because, as the Wells Fargo fake account scandal demonstrates, this form of litigation is particularly important for consumers of financial services and products where the dollars at stake in their individual cases are not large enough to justify individual lawsuits.

This victory for consumers might be short-lived, however, because Republicans in the House of Representatives have already begun the process of repealing the rule by passing a resolution using a controversial law known as the Congressional Review Act (CRA). But Congress did not always take such a dim view of consumer financial protections: In 2010, members passed a law directing the CFPB to study the effects of forced arbitration clauses on consumers. The law directed that, if the CFPB found that these clauses were harming the public, it should issue a regulation that restricts their use.

In 2015, after three years of intense study, the CFPB released a 700-page report on forced arbitration clauses, which documented the harmful effects these provisions have on the financial security of hard-working families. The CFPB then launched a two-year rulemaking process that culminated in the new regulation prohibiting banks and credit card companies from blocking class actions.

The careful process that the CFPB relied on to develop this rule stands in stark contrast to the one that Congress is set to rely on to repeal it. In effect, the CRA short-circuits the normal process of democracy, allowing Congress to pass a special kind of bill known as a "resolution of disapproval" to repeal recently completed regulations without committee hearings, floor debates, conference committees, and most notably, the now-standard 60-vote threshold in the Senate – the very procedures meant to ensure that legislation is carefully vetted and accountable to the people.

Read the full op-ed in The Hill.

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Martha T. McCluskey is a Professor and William J. Magavern Faculty Scholar at the University at Buffalo Law School, State University of New York, in Buffalo, New York.

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