• by Thom Forbes  @tforbes, July 11, 2017

In a measure that harkens back to what seems like another era, a federal agency yesterday approved a rule that favors consumers over big business — specifically financial firms. The Consumer Financial Protection Bureau ruling forbids companies from using mandatory arbitration clauses that “deny groups of people their day in court,” according the headline on the release announcing the action.

“A cherished tenet of our justice system is that no one, no matter how big or how powerful, should escape accountability if they break the law,” claims CFPB director Richard Cordray in the body of the release.

“Currently, credit card and bank companies often insert arbitration clauses in their contracts to prevent consumers from banding together to file class-action lawsuits over scams and fraudulent products. Harmed individuals who seek remedy — often in small amounts — are forced to sue on their own in small claims court, discouraging many lawsuits from consumers who deem them not worthy of their time, money and effort,” explains Roger Yu for USA Today.

“Increasingly favored by large and small companies, arbitration involves a third party — typically a retired judge — reviewing evidence from both sides and issuing a legally binding decision. Arbitration gives companies more flexibility in choosing the arbitrator and allows them to avoid jury trial while saving on legal costs,” Yu continues.

There will be blowback from multiple directions, all of it inspired by anti-regulatory fervor.

“It’s all but certain that Republican lawmakers in control of the House and Senate will move quickly to overturn the rule as part of their ongoing efforts to cripple the consumer-watchdog agency and create a more business-friendly regulatory landscape,” David Lazarus writes for the Los Angeles Times. “Because God forbid consumers actually have the power to hold big companies accountable for unfair or unethical practices.”

The jostling for headlines has, indeed, already begun.

“The move prompted a rebuke from acting Comptroller of the Currency Keith Noreika, the only Trump administration official so far in place at a federal banking regulator, and a threat by a top House Republican to hold Mr. Cordray in contempt of Congress,” report Rachel Witkowski, Andrew Ackerman and Brent Kendall for the Wall Street Journal.

“Some Republicans are considering the use of a legislative tool known as the Congressional Review Act to quickly undo the arbitration rule,” they continue.

Rarely used before the current Congress, the 1996 act already has been employed to reverse 14 rulings from the Obama administration. Rep. Jeb Hensarling (R-Tex.) has been leading the charge, Jessica Silver-Greenberg and Michael Corkery report for the New York Times. “In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives,” he claims, they report. 

Meanwhile, in what Bloomberg’s Elizabeth Dexheimer refers to as an “unusual move,” Noreika “asked that the CFPB share data used to develop its arbitration rule,” according to a letter that she obtained.

“We would like to work with you and your staff to address the potential safety and soundness implications of the CFPB’s arbitration proposal. That is why I am requesting the CFPB share its data,” Noreika writes.

“Noreika cited a section of the Dodd-Frank Act that gives the Financial Stability Oversight Council — a panel of regulators headed by the Treasury secretary — power to set aside any CFPB rule that can be shown to put the safety of the wider financial system at risk,” Dexheimer reports.

“Banks have maintained that arbitration is a fair and efficient way to resolve disputes,” Joseph Lawler tell us in the Washington Examiner. “‘The real benefactors of the CFPB's arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class-action lawsuit,’ Consumer Bankers Association head Richard Hunt said.”

An article by Harvard Law School professor Elizabeth Warren, now a Democratic senator representing Massachusetts, inspired the Obama-created CFPB. It has had a tough time navigating the anti-regulation zeitgeist from the get-go, as Lisa J. Servon details in an American Prospect piece published last week.

Titled “Will Trump Kill the CFPB?”, the subhed reads: “Created in response to the financial crisis, the [CFPB] has returned nearly $12 billion to consumers — which may be exactly why it’s now under threat.”

It seems that populism has its limits after all.