The ‘Let Them Eat Cake’ Party

The Senate GOP would send yet another tone-deaf message if it guts CFPB’s voluntary arbitration rule.

Have Republicans become the Party of Marie Antoinette?

Last week, one could almost hear Senate GOP leaders laughing and saying, “Let them eat cake!” as they privately mulled gutting a major new federal consumer-protection rule while publicly announced high-profile investigations of the very sort of corporate wrongdoing the new rule is intended to deter.

This week, Congress plans to hold three hearings on the monumental, privacy-destroying data breach at the Equifax credit bureau, and one hearing on the grand-scale fake-accounts scandal of mega-bank Wells Fargo.

  • Equifax CEO Richard Smith, whose company allowed 143 million Americans’ private data to be carried off by hackers, is slated to appear before the House Energy and Commerce Committee Tuesday morning, the Senate Banking Committee Wednesday, and the House Financial Services Committee Thursday. (Smith “retired” from the company last week, with a $90 million golden parachute.)
  • Wells Fargo CEO Timothy Sloan will appear before the Senate Banking Committee on Tuesday, one year after it was revealed the mega-bank had opened and charged customers for more than 3 million fake accounts without their consent.

Adding insult to injury, both companies have been trying to hide behind controversial fine-print forced-arbitration clauses in their customers’ contracts to shield themselves from lawsuits. The new rule issued by the Consumer Financial Protection Bureau, known as the CFPB, would make those clauses voluntary in the banking and credit-card sectors.

All of which makes it ironic that Senate Majority Leader Mitch McConnell of Kentucky began quietly canvassing his GOP colleagues last week about passing a bill to gut the rule.

If McConnell were to do so, it would be a rather sneaky move – squeezed in between noisy intra-GOP debates on health care and tax cuts – and would come just a week after several other moves also smacking of Louis XV-style elitism. Last week GOP leaders:

  • Issued a favor-the-rich tax cut plan.
  • Gave up on promises to try to slow down the soaring cost of health care.
  • Heavily backed an establishment GOP candidate over a populist firebrand in a closely watched Alabama special election—and lost.

In the wake of such politically tone-deaf moves, one might think McConnell and co. would be hesitant to snatch away the legal rights of the victims of corporate wrongdoers. Alas, one would be wrong.

Big corporations like Equifax and Wells Fargo cling to so-called forced-arbitration clauses as a way to shield themselves from lawsuits. Under the ubiquitous clauses, consumers are forced to waive their constitutional right to sue when wronged or injured by the company. Instead, they must go into private, binding arbitration – under rules that favor the company.

Congress banned the controversial clauses in mortgages in 2010. Subsequently, the Obama administration took steps to nix them in higher education and health care. And last year, the CFPB proposed a regulation to make them voluntary in credit-card and other financial user agreements. Finalized in July, the CFPB rule officially takes effect next March.

All Americans, and especially constitutional conservatives, should oppose forced arbitration as a matter of legal and moral principle. Voluntary arbitration is fine, but mandatory arbitration as practiced today violates Americans’ 7th Amendment right to a jury trial in civil disputes.

But wait. Aren’t arbitration clauses voluntary agreements between consenting adults? Not really. Increasingly, arbitration is imposed pre-dispute, without informed consent, in fine-print provisions that few among us read and fewer understand. The option has evolved into a star chamber where the rules favor the more powerful party.

Business lobbyists contend mandatory arbitration saves consumers money compared to lawsuits, but there is no empirical evidence to support that claim. And claims that consumers win more money in arbitration than in court are extremely misleading. Banking lobbyists warn of “unrestricted lawsuits” threatening small “mom-and-pop” banks and credit unions, but the vast majority of those small banks don’t even bother with arbitration. The practice mostly benefits the mega-banks.

Under a special fast-track procedure, for several months following the issuance of a regulation, Congress may easily overturn the reg with a simple majority vote, shielded from hostile amendments and filibusters. Two months ago, the House used the procedure to vote to overturn the arbitration rule, 231-190.

Will the Senate follow suit? That is the question that Senator Antoinette – er, Senator McConnell – has been quietly asking his colleagues.

In the 100-member Senate, all 48 Democrats support making arbitration voluntary. That means McConnell can only afford to lose two of his fellow Republicans. He has already lost one: Lindsey Graham of South Carolina. Graham adamantly opposes forced arbitration, in part because of its ill effects on military families and thus on military readiness. U.S. service members are vulnerable to financial hardships and illegal repossessions, and they report identity theft at roughly double the civilian rate. Soldiers on active duty and deployed overseas can be ripped off with relative impunity by unscrupulous businesses, thanks to forced-arb clauses.

Last month in a Wall Street Journal interview, Senator Graham called the clauses “a windfall for the companies, in terms of how you settle their cheating.”

“You’ve had banks and credit-card companies nickel-and-diming consumers, and one of the things that makes them think twice is the idea of a massive lawsuit,” Mr. Graham said. “Nobody is going to get a lawyer over a $10 overcharge, but when you overcharge millions of people $10, the bank or the credit-card company makes out like a bandit” in arbitration.

Will two more GOP senators join Graham? It might seem unlikely, since hating CFPB is something of an article of faith among Republicans. And yet Senator Graham’s close friend John McCain of Arizona is often willing to buck his party’s orthodoxy. So are Susan Collins of Maine and Lisa Murkowski of Alaska. (All three senators opposed their party’s most recent attempt to change Obamacare.) Senator John Kennedy of Louisiana, normally a reliable pro-business vote, is currently saying he’s 
undecided on the bill. That’s a hopeful sign.

This debate is about more than legal abstractions. It affects the lives and health of millions of human beings – in nursing homes, for example.

This week, as Congress hears testimony from Equifax and Wells Fargo, it should remember that those companies are trying to hide behind the fine-print clauses to avoid accountability for their actions, which have harmed tens of millions of Americans.

Those companies, like Marie Antoinette, are telling their victims to eat cake. If Republicans are politically smart, they’ll eschew the powdered-wig look – and side with the little guy for a change.

They should let CFPB’s pro-consumer, pro-voluntary-arbitration rule stand.

Dean F. 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 or on twitter @deanclancy.

[Originally published at, Oct. 3, 2017. @usnewsopinion. Republished at]

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