Consumer Protections Just Took a Back Seat to Wall Street
By Lorelei Salas, DCA Commissioner
For the last six years, the Consumer Financial Protection Bureau (CFPB), established by Congress in the wake of the 2008 financial crisis, has vigorously championed the interests of consumers in the marketplace. The agency has served as a watchdog over questionable business practices and predatory tactics — holding financial institutions and creditors accountable.
Last week, President Trump signed a resolution to officially revoke a CFPB rule designed to empower consumers preyed upon by financial institutions. The measure passed the House of Representatives in July and Vice President Pence cast his vote to break the 50–50 tie in the Senate. This sent a chilling message to American consumers — their protections are taking a back seat to the needs of Wall Street executives. Make no mistake that with these actions Congress and the Trump Administration have made it abundantly clear that they are fighting, not for the interests of average Americans, but rather in the interests of Wall Street.
Without this rule, financial institutions and credit card companies alike will continue to impose mandatory arbitration clauses, often times unbeknownst to consumers, into the fine print of contracts. The rule was designed to limit this predatory behavior and would have prohibited financial institutions and credit card companies from drafting customer contracts that curtail their right to pursue a class action lawsuit. The CFPB understood that there is power in numbers and the ability to form a class action lawsuit shifts the power back to the consumers who currently only prevail in nine percent of the claims they bring. A class action has the power to produce greater transparency through shared information and expose systemic practices that consumers may otherwise never know about. Further, class actions can help bring out widespread change in industry practices that ultimately benefit all consumers.
Congress, by overturning a well-studied and publicly noticed rule, has affirmed the notion that businesses can continue to prey on vulnerable individuals without federal accountability. A comprehensive 2015 report conducted by the CFPB studied the use of arbitration in the financial services industry. Among the report’s findings were that tens of millions of consumers are covered by arbitration clauses — primarily through credit card issuers or banks that operate consumer checking accounts — and that 75 percent of them did not even know they were subject to an arbitration clause. Moreover, the report suggests that forced arbitration clauses are often evoked to block consumers’ right to pursue court action — finding that in 65 percent of credit card issuers studied, they invoked their arbitration clause to block class action by consumers.
Corporate America already holds the reins in the workplace where, according to the Employee Rights Advocacy Institute For Law & Policy, 80 percent of the largest U.S. companies have used forced arbitration agreements in workplace related disputes. Arbitration can be an alternative to litigation but, when it is not a choice between two parties, it only perpetuates the existing imbalance of power and paralyzes consumers (and workers); trapping them in harmful situations they often unknowingly entered.
As an agency charged with protecting consumers, the NYC Department of Consumer Affairs (DCA) has prioritized enforcement in industries in which businesses engage in deceptive and predatory lending schemes that put people into cycles of debt. Take for instance the used car industry, where Mayor Bill de Blasio just signed additional consumer protections into law that arm used car buyers with more information about their financing options and give DCA the ability to revoke licenses when businesses engage in loan fraud. Importantly, we are also now holding the lending financial institutions accountable by demanding consumer restitution from them in cases where fraud was perpetrated by the dealership. New York City knows that strengthening consumer protections is the way to go and will continue to lead the charge.
But this decision by the federal government is an attack on consumers who most need protection and an early holiday bonus to corporations who are free to continue to enforce these forced arbitration agreements.
Lorelei Salas is the Commissioner of the NYC Department of Consumer Affairs. Learn more at nyc.gov/dca.
