In the Trump administration, the Consumer Financial Protection Bureau is the equivalent of a fort abandoned behind enemy lines. Many Republicans are attempting to blow the agency to smithereens, while the Obama administration that defended it is no more. Yet even as Obama appointees resign (I’m looking at you, Walter Shaub!) or are fired (Hi, Preet Bharara!), CFPB head Richard Cordray continues to fight on at his post.
The latest skirmish: On Monday, the CFPB announced final regulations that will, beginning early next year, significantly change how banks, credit-card companies, prepaid-card issuers, and other financial-services companies handle disputes with their customers. The new regulations ban contracts that force consumers into mandatory arbitration, allowing them instead to join class-action lawsuits against these firms.
Cordray’s action is a terrific strategic move, likely pushing Republicans to repeal enormously popular regulation, or step aside and allow it to stand.
“I think the CFPB wants this fight,” says Ed Mierzwinski, the director of consumer programs for US PIRG. “The populist trend in this country is not right-left. It’s little guy-big guy. Do [Republicans] really want to stand with Wall Street banks?”
Massachusetts Senator Elizabeth Warren also spoke up, saying, “Republicans will have to decide whether to defend the interests of their constituents or shield a handful of wealthy donors from accountability.”
So what’s this all about?
In 2016, the CFPB sought public comment on a proposed rule that would limit the use of mandatory arbitration in financial contracts. The initiative was an attempt to get a handle on a growing threat to consumer rights. Over the previous decade, increasing numbers of companies, ranging from employers to credit-card issuers, inserted language into their contracts that railroaded customers into private arbitration to settle disputes. These are frequently take-it-or-leave-it clauses, and they effectively strip consumers of the ability to turn to a judge and jury for redress if a problem arises.
No surprise, banning mandatory arbitration is rather popular among consumers. According to polling conducted by the Pew Charitable Trusts, just under 90 percent of those they surveyed wanted the right to join a class-action lawsuit against a bank, and support for the position barely varies by party. Democrats and Republicans alike want the right to enjoy their day in court.
But mandatory arbitration enjoys a powerful fan base in the financial-services sector—and among its dutiful minions in Congress. Many made their fury known on Monday. Representative Jeb Hensarling, the Texas Republican who is House Financial Services Committee chairman, quickly released a statement promising to repeal the regulation. “In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives. Congress must work with President Trump to make good on this mandate by fundamentally reforming the CFPB and dismantling the Administrative State.”