Forcing banks to fight fair
A powerful rule finalized last week by the Consumer Financial Protection Bureau will allow consumers to join together in class-action lawsuits against banks, credit card companies and other lenders over price gouging, predatory lending, abusive loan terms and other mistreatment.
Some congressional Republicans have vowed to use special legislative procedures to repeal the rule, which could take effect next year. A quick kill would be of a piece with other efforts to weaken financial regulation and allow firms to operate without accountability to customers or judges.
It’s unclear whether a congressional majority will vote to overturn a rule of such obvious benefit to consumers. What is certain is that killing the rule would be an injustice.
In recent decades, banks and other corporations have increasingly required customers to agree in advance to individually arbitrate any conflicts that arise over products and services, rather than sue in court. Arbitration, however, has turned out to stack the deck; corporations choose the arbitrators and set the rules of evidence. As a result, individuals usually abandon the effort rather than pursue their grievances.
The failure of arbitration to redress wrongdoing is especially stark in financial disputes. A series of articles by The Times in 2015 found that from 2010 to 2014, only 505 consumers — out of tens of millions whose financial contracts have mandatory-arbitration clauses — went to arbitration over disputes of $2,500 or less. The lack of recourse is an invitation for banks to chisel small amounts from potentially millions of customers.
The Times found that among the class actions thrown out of court over the years because of mandatory-arbitration clauses was one brought by Citigroup customers who said the bank had tricked them into buying insurance they were ineligible to use. A class action brought by merchants who sued American Express over high processing fees was similarly dismissed.
Wells Fargo, its reputation shredded after regulators and law enforcement officials exposed a longstanding practice at the bank of opening phony accounts in customers’ names to pad the number of fee-generating accounts, did recently agree to settle some class-action suits over the scam. But it still maintained that the plaintiffs could not sue.
Even if the Republicans do not overturn the new rule, bank lobbying groups will most likely file legal challenges to delay or block it. If it comes to that, the absurdity of the industry’s going to court to argue that aggrieved customers should not be allowed to go to court will hopefully not be lost on the judge.