The CFPB ban would have lessened the exploitation of the general public by the big banks, and since that represented a threat to the big banks’ profits, they used their power to have this ban repealed quickly.
The measure overturns the so-called arbitration rule, which would have banned banks, credit-card companies and other financial firms from requiring customers to settle disagreements through arbitration rather than in the courts. The mandate often appears as a fine-print clause in customer agreements.
Another article notes that despite majority support for the ban on prohibiting class action lawsuits against financial corporations, the rule was still overturned.
“The bill was entirely and exclusively supported by the [finance] industry,” said F. Paul Bland, an attorney at Public Justice, a consumer group. “Every group that represents consumers was strongly against the bill.”
Bland listed special interest groups that opposed the bill: armed service member groups, senior citizen groups, civil rights groups. “Lots of polling said both Republicans and Democrats oppose the bill by heavy margins,” said Bland. “This was the Wells Fargo immunity act. It’s essentially a bailout for those companies.”
For Wells Fargo, Equifax, and other companies that behave badly on a major scale, preventing consumers from banding together to seek justice is a major boon that could save these companies from an unknowable amount of damages.
From a report out months ago:
While the average consumer who wins a claim in arbitration recovers $5,389, this is not even close to a typical consumer outcome. Why? Consumers obtain relief regarding their claims in only 9 percent of disputes. On the other hand, when companies make claims or counterclaims, arbitrators grant them relief 93 percent of the time—meaning they order the consumer to pay. If you consider both sides of this equation, in arbitration, the average consumer is ordered to pay $7,725 to the bank or lender. That’s right: the average consumer ends up paying financial institutions in arbitration.
But let’s consider the consumers who do win in arbitration. How do those numbers stack up against class action lawsuits? In an average year:
- At least 6,800,000 consumers get cash relief in class actions—compared with just 16 consumers who receive cash relief in arbitration, according to available data.
- Consumers recover at least $440,000,000 in class actions, after deducting all attorneys’ fees and court costs—compared with a total of $86,216 in arbitration.
Banning consumer class actions lets financial institutions keep hundreds of millions of dollars that would otherwise go back to harmed consumers every year.