Karon Law Blog

Wall Street Wins, Consumers Lose the Right to Go to Court, Thanks V.P. Pence

By Jonathan A. Karon

Sometimes it seems like I’m harping on the same topic, but this is really bad news for consumers. Last Tuesday Vice President Pence cast a tie-breaking vote in the Senate to allow big banks and credit card companies to require their customers to submit all their disputes to binding arbitration, a secret proceeding before a private judge, selected by the companies, who do not have to follow the law, but can instead follow different rules, written by -wait for it- the companies.

In previous posts, I discussed how large companies are increasingly requiring consumers to give away their rights to go to court as a condition of opening a bank account, getting cell phone service, obtaining a credit card or other essential goods and services. Due to an unfortunate series of 5-4 Supreme Court decisions, interpreting an obscure 1925 law, called the Federal Arbitration Act, intended to allow (but not require) businesses to agree to have their cases decided by binding arbitration, state governments are powerless to protect their citizens against corporations imposing one-sided arbitration agreements on their customers.

The Consumer Financial Protection Bureau, under the previous administration had adopted a rule prohibiting banks and credit card companies from requiring their customers to go to binding arbitration. This was done after extensive study, which found, not surprisingly, that consumers did far worse on average in these one-sided arbitrations, than they did in pursuing their claims in court. Nothing in the rule prohibited consumers from resolving their claims through arbitration, it merely allowed consumers to retain their right to choose whether to do so.

Before the rule could take effect, Congressional Republicans voted to revoke the rule under a statute called the Congressional Review Act which allowed them to revoke the rule on a strict party line vote. After the House of Representatives voted, over Democratic opposition, to rescind the rule, it was considered by the Senate, this past Tuesday, October 24th. All Senate Democrats and two Republicans, Senators Lindsey Graham of South Carolina and John Kennedy of Louisiana, voted to keep the rule in place and prohibit forced arbitration. This left the Senate in a 50-50 tie, causing Vice President Mike Pence to be dispatched to break the tie by casting his vote on the side of big banks and against regular folks. This resulted in more than a little bitterness, with Democratic Ohio Senator Sherrod Brown stating that “the vice president only shows up in this body when the rich and the powerful need him.”

I don’t know if the Vice President really only shows up when the rich and powerful need him, but his vote was certainly in favor of the rich and powerful and against regular folks in this case. Despite the fact that Wells Fargo recently tried to invoke arbitration agreements against persons who sued them for fraudulently opening bank accounts and Equifax tried to impose these as a condition of receiving free credit monitoring, following its data breach, almost all Republicans voted to deny consumers their day in court.

As these arbitration clauses also prohibit class actions suits or arbitrating as a class, big banks and credit card companies have essentially been give a license to cheat their customers as long as the amounts are too small for it to make sense for any one customer to bring a claim.

But the worst part of these arbitration clauses is that they deny consumers the right to bring any claims, even very significant ones, to Court. If you don’t think this is a big deal, ask yourself whether you’d like to have your case decided by a private judge, selected by the other side or whether you’d like to have your case decided by 12 citizens selected from your community, with input from you and your lawyer and who have been found by a judge to be impartial. The Founding Fathers (sorry, but they were men) thought that this right was so important that the Seventh Amendment to the Constitution guarantees the right to a jury trial in civil, not just criminal, cases.

The bill rescinding the rule now goes to President Trump, who, despite continuing opposition from many groups, including those representing veterans, is considered certain to sign it. It is puzzling why elected officials who continually claim their allegiance to states rights and to be “Constitutional Conservatives” seem to be abandoning their principles on this issue.
In any event, I do agree with the conclusion of Richard Cordray, Director of the Consumer Financial Protection Bureau that as a result of the Senate vote, “ “Wall Street won and ordinary people lost.”