The U.S. House of Representatives Recently Passed a Bill to Help Large Financial Institutions Get Away with Ripping Off Their Customers.
It’s called the “Financial Services and General Government Appropriations Act,” and its current bill number is H.R.5485. Why does it matter? A little backstory is needed. Back in 2009, before people had forgotten just how bad the Subprime Mortgage Meltdown was, Congress passed a law called the Dodd-Frank Wall Street Reform and Consumer Protection Act. Unlike a great many laws passed by Congress (like, for instance, the comically named “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” which did nothing to either prevent bankruptcy abuse nor protect consumers), the Dodd-Frank Act really did try to reform Wall Street and protect consumers. Whether it succeeds will take some time to figure out.
One of the cornerstones of Dodd-Frank’s protections was the Consumer Financial Protection Bureau, which was authorized to regulate banks and financial institutions in certain ways. One of those authorized regulatory powers was the ability to restrict the use of forced arbitration.
As I and many others have explained before, forced arbitration sucks for a lot of reasons, because it is usually biased in favor of big corporations and if you get stuck with a bad or even a crazy decision, you cannot appeal it.
Of course, people who have done bad things generally don’t like having to pay for them, so big businesses who deal with lots of consumers love arbitration. Lots of corporations stick arbitration clauses in their massive 30 page contracts, even for things as seemingly minor as a cable subscription or cell phone purchase. Most arbitration clauses prohibit you from joining in or filing a class action lawsuit. So if a cable company overcharges 200,000 customers by $25 each, then they’ve stolen $5 Million, and they should have to pay it back, right? Most people believe so. But arbitration lets them get away with small frauds and ripoffs, because nobody is going to hire a lawyer and file a lawsuit for $25. Since the arbitration clause prevents these people from all joining together, the cable company just gets away. If a human steals $5 Million, you go to jail. If a big business steals $5,000,000, they just need to make sure they have an arbitration agreement with everyone they stole from.
This is ridiculous, so the CFPB recently issued a regulation to prohibit financial institutions from being able to do exactly that. Naturally, the banks kicked and screamed and called their pets in Congress to block the CFPB from implementing this common-sense rule. Unsurprisingly, the House of Representatives gave them exactly what they asked for. They passed this bill along party lines (Republicans mostly voted for the banks; Democrats mostly voted against them).
Hopefully, the bill will never get signed. Stay tuned.