Using an obscure legislative maneuver, the U.S. Senate is set to consider a repeal of the right of bank customers to seek financial redress using class action lawsuits -- a right finalized by the Consumer Financial Protection Bureau (CFPB) just last week.
“We urge senators to leave this common-sense consumer protection intact,” said Michael Best, director of advocacy outreach at Consumer Federation of America. “The rule has restored consumer access to an important accountability tool -- joining together in legal actions. Forcing individuals to hold large corporations accountable, one by one through arbitration, is not a reasonable alternative.”
Advocates representing investors, consumers and military families are opposing the measure to undo the new right, which would once again allow financial services firms to prohibit class actions and force consumers into private, individual arbitration. The House of Representatives has already approved the repeal, which is pending in the Senate.
While companies like Wells Fargo have been the subject of hundreds of millions of dollars in regulatory fines for misleading investors by selling unsuitable high-risk, illiquid securities, investors have fared horribly in arbitration against the company, according to a new analysis from the Economic Policy Institute (EPI). The average consumer in arbitration against Wells Fargo is actually ordered to pay the bank $11,000, EPI says.
Congress granted the authority to the new consumer agency, the CFPB, to restrict the use of fine print that forces consumers to settle disputes individually through arbitration proceedings. This year, the agency finalized a rule that would forbid financial contract clauses that denied consumers the right to join other consumers in legal actions, Best says.
But in an obscure twist, the Congressional Review Act allows Congress and the President to undo agency rules through a majority vote. The House of Representatives has already voted to overturn the rule.
“Even in the wake of its massive fake accounts scandal, Wells Fargo sought to prevent lawsuits seeking redress for its alleged wrongdoing by forcing victims into arbitration proceedings,” Best says.
While the Financial Industry Regulatory Authority (Finra) allows brokerage firms to require arbitration, it does not allow them to block class action suits. “Since 1992 Finra has had rules ensuring that investors can join together in class action suits to fairly and efficiently have their disputes heard by the courts. Consumers of more mass market financial products should have the same right,” Best says.
The Military Coalition (TMC), a consortium of organizations representing more than 5.5 million current and former service members and their families and survivors, is also vigorously supporting the new consumer protection -- for good reason. Any bank repossessing a service member’s property is supposed to obtain a court order, but not all have done so.
According to a complaint by the Department of Justice, Santander Consumer USA Inc., one of the largest, subprime car lenders in the country with $14 billion in loans, illegally repossessed more than 1,100 vehicles from members of the military between 2018 and 2013.