While Washington – and political Twitter – remain consumed by the battle of words between President Trump and Tennessee Senator Bob Corker, not to mention the latest attempts by the Republicans to move tax reform forward, an important Republican effort to weaken financial oversight and accountability is proceeding onward behind the scenes.
This week brings some important new developments in an area that rarely gets enough attention: The GOP’s ongoing efforts to weaken a signature effort by the Consumer Financial Protection Bureau to buttress the legal rights of consumers when they get into a dispute with a financial services company.
The Consumer Financial Protection Bureau was created under the Dodd-Frank financial reform act to level the playing field for Americans when they deal with companies offering them mortgages, credit cards, and other financial products. This past summer, the CFBP has undertaken to grant consumers who sign user contracts with financial services companies the right to join class action lawsuits in the event of a dispute over the terms of service, charges or other problem.
This CFPB action is an attempt to take on the growing corporate tactic of more or less forcing consumers seeking their offerings to sign away their rights to join a class action lawsuit. There is rarely an opportunity to say no – if you forgo the contract, you can forgo, say, the credit card.
What this all means is that, at a time when Republicans appear divided over so many things, they are unified on this one thing: The Trump administration and the GOP Congress continue to have Wall Street’s back. The CFPB plan would toughen regulations in the service of protecting consumers. But Trump and Republicans are trying to roll all that back.
The administration is doing all it can to help congressional Republicans in this regard.
Yesterday, Steven Mnuchin’s Treasury Department released a study claiming the CFPB’s action would lead to thousands of class action lawsuits and cost the financial services firms impacted by it the “extraordinary” sum of $1.7 billion settlement money, not to mention several hundred million more in legal defense fees. “The rule will effect a large wealth transfer to plaintiffs’ attorneys,” the report sniffed.
The financial services industry all but celebrated. Jaret Seiberg, an analyst with Cowen Washington Research Group, proclaimed in an analyst’s note that the Treasury Department report provides “political cover” to nervous Senate Republicans, adding: “As a result, we are bullish for the first time for prospects of the Senate overturning the CFPB’s prohibition on mandatory arbitration agreements.”
This follows efforts from the Office of the Comptroller of the Currency, which has also taken aim at the regulation. The OCC recently published its own report on the issue, claiming the rule would result in credit card rates increasing by about 3.5 percent. And OCC head Kieth Noreika claimed the rule will cause “harm to community banks.”
Ultimately, the effort to stop this regulation lives or dies in the Senate.
After the CFPB moved forward with the regulation this past summer, Republicans in the House of Representatives, who hate the agency, immediately voted to repeal the nascent rule. But the push to the repeal the regulation could face tougher odds in the Senate. Polling shows Americans support the CFPB on this measure. And predictions have varied as to what will happen in the Upper Chamber. Senator Lindsey Graham (R-S.C.) has expressed doubts about repealing it. Sen. Susan Collins (R) is also reported to be undecided, and a recent survey conducted on behalf of Americans for Financial Reform and the Maine People’s Alliance found overwhelming support for the regulation in her home state of Maine.
The CFPB’s critics aren’t wrong when they say the amounts members of a class action sometimes receive in these sorts of cases are often in the low two figures, meaning few will participate in them. But that misses the point of the regulation. Few will go to either court or arbitration for the purpose of recouping, say, an unfair $35 overcharge. But multiply that up by a few hundred thousand, and you can see where a settlement can deter a bank or other financial services firm from engaging in such behavior.
The larger story here is that this is yet another way in which Trump’s campaign vow to take on financial elites is being revealed as a scam. Trump campaigned on a promise to “drain the swamp” and frequently claimed Hillary Clinton was “bought and paid for by Wall Street.” But he immediately appointed a passel of Wall Street types to key advisory positions, and set about working with Congressional Republicans to undo regulations protecting vulnerable Americans from big business. He’s gone after financial regulation created in the wake of Great Recession, Obama era protections for labor, and attempts to help former college students left with tens of thousands of dollars of student loan debt incurred when they fell for false stats on job placement and graduation rates.
This latest move on the CFPB won’t drain the swamp. Pouring buckets of sludge into the swamp is more like it. Or, as Joe Valenti, the director for consumer finance at the Center for American Progress, put it to me: “It’s fortifying the swamp by allowing companies to take away victims’ right to court and give themselves a free pass from accountability.”