As expected, Republican lawmakers in both the House and Senate have introduced legislation that would overturn new rules intended to make sure that bank and credit card customers aren’t stripped of their right to file lawsuits in a court of law. Not surprisingly, many of the politicians pushing this pro-bank bill recently received significant financial support from the financial sector.
We mentioned in our original story, before the legislation was introduced, that the two main sponsors — Rep. Jeb Hensarling (TX) and Sen. Mike Crapo (ID) — received a total of $6 million in campaign contributions from the financial sector in 2016, with $1.9 million going to Hensarling’s campaign and $4.1 million going to Crapo.
But among those supporting the legislation to roll back the new protections on bank and credit card customers, these two lawmakers aren’t even the largest beneficiaries of the financial industry.
Sen. Pat Toomey (PA) received a total of $7 million from this sector in 2016. According to the Center for Responsive Politics, Toomey was the largest recipient of funding from commercial banks last year, with $935,000 in contributions coming from that industry alone, plus another $2.55 million coming from securities and investment firms.
Other Republicans on the Senate Banking Committee, eight of whom have already co-signed this bill, have also received millions from the financial sector.
This includes Sen. Bob Corker (TN), whose campaign took in $3.7 million from this sector, including $1.09 million from securities and investment firms and $517,000 from commercial banks. Arkansas Senator Tom Cotton raised $2.7 million from financial firms in 2016, including $1.23 million from investment firms and $344,000 from commercial banks.
The eight Senate sponsors of this bill received a total of $24 million — an average of $3 million each — in 2016 from the industry that would be most affected by the new rules.
Over in the House, the individual numbers aren’t as large, but they do add up, with the supporting legislators’ campaigns earning more than $22 million from financial companies in the last election cycle.
In addition to the $1.9 million received by Hensarling, other recipients of significant financial sector contributions include Rep. Patrick McHenry (NC), whose campaign took in $2.1 million from this industry in 2016, making him the #3 favorite recipient of commercial bank money.
Rep. Ed Royce (CA) is the third-highest recipient of contributions from credit unions, helping him to bring in $1.7 million in campaign money last year. Ohio Rep. Steve Stivers’ campaign took in $1.5 million; he’s a #3 favorite for the finance/credit industry in all of Congress. His fellow committee member, Rep. Blaine Luetkemeyer (MT) is the favorite of finance/credit; his campaign received a total of $1.3 million last year from the financial sector.
What Are They Fighting Against?
The new rule from the Consumer Financial Protection Bureau severely limits the ability of many banks and credit card companies from using “forced arbitration” clauses in their customer contracts. These clauses not only prevent customers from suing the bank in a court of law; they also allow the company to prevent customers from joining their complaints together in a class action.
For an example of how anti-consumer these arbitration clauses can be, one need look no further than the recent Wells Fargo fake account fiasco, where potentially millions of customers were affected by employees who opened up bogus, unauthorized accounts in the customers’ names.
The Wells Fargo customer contract includes a forced arbitration clause, and the bank repeatedly attempted to enforce that clause to shut down class actions brought by customers over this widespread fraudulent activity. Ultimately — under pressure from the media, lawmakers, and regulators — the bank decided to settle these class actions, but it could have forced each of the millions of allegedly wronged customers into individual arbitration.
The lawmakers behind this legislation to overturn the new arbitration rule argue that arbitration is actually pro-consumer. Sen. Mike Rounds (SD), whose campaign recently made $1.3 million from the financial sector, contends that arbitration is superior to class action lawsuits because the payouts are typically higher.
The problem with Rounds’ way of thinking is that is like comparing apples to apple orchards. Yes, a successful arbitration case can result in the wronged customer receiving a few thousand dollars, while the average payout of a massive class action may only be a few dollars each. However, the CFPB’s survey of arbitration cases in the financial industry found that very few bank and credit card customers even know what arbitration is, let alone ever go through the process of filing a dispute in arbitration.
So say a bank wrongs 100,000 customers by illegally charging them for a service they didn’t ask for. Now say, generously, that 50 of those wronged customers take the initiative to enter into arbitration and get $5,000 each (which is also generous). That’s a total of $250,000 penalty to the bank, with more than 99% of customers getting nothing and the bank effectively being allowed to break the law. Additionally, many arbitration results are confidential, so the remaining 99,950 customers may never even know they were screwed out of money.
But a class action suit could represent all 100,000 wronged customers. Let’s use the $32 per person figure that arbitration supporters love to throw around: $32 times 100,000 = $3.2 million, that’s a penalty that is more than 10 times the size of what the bank would pay in the arbitration example. Even if a company settles and doesn’t have to admit wrongdoing, the increased public awareness of the dispute helps to prevent the company, and hopefully others, from future bad behavior.
Heavily Unbalanced
“Forced arbitration is heavily weighted against the consumer,” explains our colleague George Slover at Consumers Union,” adding that “it shields financial companies from accountability for widespread wrongdoing.”
Christine Hines, Legislative Director at the National Association of Consumer Advocates, said it was disappointing but not surprising that “some members of Congress would sacrifice their constituents’ legal rights to make big banks and predatory lenders happy. Wall Street lobbyists have been urging their congressional allies to seek repeal of the CFPB arbitration rule, which restores American consumers’ right to band together in court when financial institutions cheat, deceive, or defraud them.”
Even some lawmakers who received not-insignificant funding from the financial sector say the GOP move to roll back these protections goes too far.
Sen. Al Franken of Minnesota, an outspoken critic of forced arbitration (whose campaign did receive $1.3 million from the financial sector in 2016), alleged today that “powerful special interests are encouraging my colleagues across the aisle to undo this critical consumer protection… as lawmakers, we should be working on behalf of all Americans, not big banks.”
The pieces of legislation introduced today seek to use the Congressional Review Act, a law that allows members of Congress to voice their disapproval of recently finalized federal regulations. CRA resolutions only require a simple majority in each chamber of Congress. Given the large GOP majority in the House, the resolution seems likely to pass that chamber, even if a few Republicans oppose it.
The GOP only has a two-vote majority in the Senate, and possibly only a single vote, depending on how long Sen. John McCain (AZ) remains out of office to deal with his recently discovered brain tumor. Republicans would effectively need a full party-line vote (or support from one or two more conservative Democrats) for the CRA to pass the Senate.
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