GOP hurting consumers by repealing protection laws
WASHINGTON — Republicans claim to believe no company is too big to fail. The almighty market must be allowed to work its magic, and firms with defective business models should face the consequences.
Yet over the course of this year, President Trump and Congress have worked to prop up lots of defective firms. By which I mean: Companies whose business models are contingent on scamming customers, shortchanging workers and suckling the government teat.
Just last week, the Senate limited consumers’ ability to fight back against financial firms that have cheated them. Which is of course an implicit subsidy to firms whose profits depend on cheating.
Right now, if a bank wrongs you — opens a fake account in your name, say — you might be able to move your business elsewhere. But even if you do, it’s exceedingly difficult to get restitution.
That’s because a common condition of doing business with a bank, credit card company, payday lender or other financial institution is that you sign away your legal rights.
Often buried in the fine print is language saying you must resolve any dispute through arbitration, with the arbitrator sometimes selected and paid by the very same company that wronged you. More important, you and any other victims injured in the same way are also prevented from pooling your resources together to file a class action.
In practice, this means firms can expect to cheat you with relative impunity.
For example, a credit card company can slap, say, wrongful $100 late fees on 100,000 different customers, pocketing a cool $10 million in the process. The company also knows that no solo customer is foolish enough to endure the expensive and arduous arbitration process necessary to recover a mere $100.
As you can imagine, this doesn’t create great incentives for banks to treat their customers well. Which is exactly why the Consumer Financial Protection Bureau finalized a rule this summer barring the use of these so-called mandatory arbitration clauses.
Congress, with Trump’s expected signature, nullified the rule last week, effectively shielding banks from facing consequences for large-scale bad behavior.
That rule just dealt with mandatory arbitration clauses in certain financial contracts. Congress and the administration have delayed or dismantled other regulations curbing forced arbitration in disputes involving nursing homes, for-profit schools and sexual harassment claims against government contractors.
This year, the House also passed a bill that would make it more difficult to bring class-action cases in general.
To its credit, the House Liberty Caucus opposed that legislation. In a statement, the libertarian-leaning group argued that “Class action lawsuits are a market-based solution for addressing widespread breaches of contract, violations of property rights, and infringements of other legal rights.” It added that class actions are “a preferable alternative to government regulation.”
Republicans have lately pursued other measures designed to limit the private-sector financial consequences faced by corner-cutters.
On the very day Equifax announced its massive data breach, the House held a hearing on legislation to cap actual and statutory damages for class actions involving credit agencies at $500,000, and to eliminate punitive damages.
Republicans have also made it easier for firms that can’t make ends meet honestly to score government contracts.
They did this by killing an Obama-era order requiring companies bidding on government contracts to disclose if they’ve recently broken any labor laws.
Without such disclosures, it’s harder for agencies to tell if a bid happens to be unusually low because the firm is efficiently run — or because the bidder likes to illegally work employees off the clock. This, of course, puts firms that are run well, and that don’t break labor laws, at a disadvantage.
To be fair, cheating isn’t the only bad-business model being propped up by Republicans. Some companies just have trouble competing because the world has changed. I’m looking at you, coal. Trump typically blames the decline of coal — and coal jobs — on burdensome environmental regulations. The real culprit, though, is technological change. Innovation has allowed fewer workers to extract the same amount of coal, and more significantly, has made natural gas a much cheaper alternative to coal.
The administration’s response has not been to let unfettered energy markets sort things out and help displaced coal workers transition to other ways to support their families. Instead, it’s been to directly subsidize the coal industry — and delay the inevitable.
In the long run, none of these actions are good for consumers, workers or the healthy functioning of markets. They merely reward firms that can’t hack it under 21st-century economic forces and 21stcentury laws.