Defending corporate wrongdoers at the expense of our Seventh Amendment rights.
Minimizing ‘lawsuit abuse’ has long been a GOP priority. But overturning the anti-forced arbitration regulation issued this week by Consumer Financial Protection Bureau, as congressional Republican leaders are reportedly rushing to do, would be a political and policy mistake.
Forced arbitration clauses waive a customer’s right to sue a company in case of a dispute. The fine-print provisions can be found nowadays in seemingly every contract we agree to, and every app we download.
Business lobbyists defend the clauses as voluntary agreements that minimize ‘lawsuit abuse’ by ‘greedy’ class-action trial attorneys. But in reality, the clauses are often imposed on consumers without informed consent, and are increasingly being used to shield corporate wrongdoing.
The new rule protects Americans from the negative effects of forced arbitration clauses in a host of financial contracts, such as credit cards, bank accounts, and payday loans. The clauses are already banned in mortgages and real estate.
News reports suggest the House may vote as soon as next week on a formal ‘resolution of disapproval’ of the CFPB regulation, which was authorized by Congress in 2010, formally proposed in 2016, and finalized this week.
A resolution of disapproval enables Congress to kill a federal regulation within 60 legislative session days following its formal publication, by means of a quick up-or-down, simple-majority vote, with no chance of amendment or filibuster. If the regulation is disapproved by the House, the Senate, and the President, it is dead and may not be reissued. This procedure has been used successfully to overturn fourteen regulations to date, all but one of them in the past six months.
Last week when CFPB announced the new rule, prominent Beltway Republicans cried foul:
- Rep. Jeb Hensarling of Texas, chairman of the powerful House banking committee, denounced the reg as a ‘big, wet kiss’ to the trial lawyers.
- Sen. Tom Cotton of Arkansas vowed to kill the regulation swiftly.
- The U.S. Chamber of Commerce urged Congress to kill not only this regulation, but every CFPB rule, on grounds the agency is unconstitutional and therefore all of its actions are invalid.
The GOP would be terribly foolish to go down this road, for three reasons.
Forced arbitration is: 1) unconscionable, 2) unconstitutional, and 3) politically unwise. Defending it is a big political loser.
1. Unconscionable. Here are some examples of the kind of behavior CFPB’s reg is trying to prevent.
- Wells Fargo Bank admitted its employees systematically created millions of sham bank accounts in its customers’ names, and then in many cases fraudulently billed those same customers for fees and services they never agreed to. Executives of the megabank knew this was happening but did nothing. Then, they decided to blame 5,300 ‘rogue’ employees, who were summarily fired. Now, to ward off thousands of lawsuits, the company is hiding behind binding arbitration clauses in its victims’ contracts.
- Roger Ailes, the now-deceased executive of Fox News, was accused, before his death, by multiple female employees of sexual harassment. To keep the women’s allegations out of court, and to forestall a long line of past accusers from taking the witness stand, he invoked clauses in his employees’ hiring contracts requiring any disputes be handled through a private, highly secretive arbitration process.
- Military readiness has been negatively affected by unscrupulous payday lenders who prey on military service members and veterans. The victims become overly indebted thanks to exorbitant interest rates and hidden fees they don’t understand, and then find themselves unable to obtain relief thanks to forced-arbitration clauses. Because of this, the Military Coalition, which represents nearly 6 million uniformed service members, veterans, and their families, has formally petitioned Congress to ban the clauses.
2. Unconstitutional. Question: If binding arbitration clauses are so bad, why are they so common? Because a series of Supreme Court rulings (the most recent one in May) have effectively overturned the traditional common-law understanding of arbitration.
In past centuries, arbitration was understood as a voluntary option that is fair only when both parties are of roughly equal bargaining power or else have agreed to it freely after a dispute has arisen.
In lieu of that reasonable understanding, the Court has substituted a doctrinaire ‘right of contract’ that allows a powerful party to effectively force a weaker party to waive his or her constitutional right to sue, before a dispute has arisen and often without informed consent. This transformation defies common sense and severely weakens Americans’ Seventh Amendment right to a jury trial.
Today, arbitration has devolved into a private star-chamber that’s stacked in favor of the accused corporation—which, unsurprisingly, usually wins.
Is the CFPB itself unconstitutional? Yes, in my opinion. But so is forced arbitration. And Congress has a duty to protect our constitutional rights.
Instead of lashing out at the agency by overturning this regulation, Congress should do the right thing and amend the Federal Arbitration Act to make binding arbitration agreements truly voluntary for all Americans, as the Constitution requires. Having done so, it could then, at its leisure, reform (or, as I would prefer, abolish) the controversial agency.
3. Politically Unwise. Those who vote to overturn the CFPB regulation will be placing themselves on the side of accused sexual harassers, corporate wrongdoers, and unscrupulous payday lenders who exploit our troops.
If Republicans are politically sensible—or just have an ounce of self-respect—they’ll take the high road and let this reasonable rule stand.
Dean Clancy, a former senior Republican official in Congress and the White House, writes on U.S. health reform, budget, and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.