Sens. Chuck Grassley and Joni Ernst voted this week to kill a regulation that was widely considered to be a landmark piece of consumer protection. The regulation was created in July by the Consumer Financial Protection Bureau (CFPB) to stop banks, credit card companies and other financial services companies from forcing consumers into individual arbitration sessions to resolve disputes, and allowed people who believed they had been cheated to join together in groups for either arbitration or class-action lawsuits.
Two Republican senators, Lindsey Graham of South Carolina and John Kennedy of Louisiana, joined with all 48 Democrats in the chamber to oppose killing the regulation. Vice President Mike Pence cast the tie-breaking vote.
After the Tuesday night vote, the White House told reporters President Trump “applauds” the Senate action. Democratic Sen. Elizabeth Warren of Massachusetts called the Senate vote a “giant wet kiss to Wall Street.”
Following the 2011 U.S. Supreme Court decision in the case of AT&T Mobility v. Concepcion, corporations have increasingly relied on contract provisions that force customers to submit as to binding arbitration as individuals. In the Concepcion case, the court ruled 5 to 4 that states cannot prohibit mandatory arbitration clauses in contracts or even require companies to allow consumers to join together as a group for class-action arbitration. Writing for the majority, Justice Antonin Scalia said that federal law prioritized “streamlined proceedings” over protection for consumers.
The arbitration process offers individuals very little protection, as The New York Times documented in 2015. The Times concluded, after examining “records from more than 25,000 arbitrations between 2010 and 2014 and interviewing hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states,” that the increased use of mandatory arbitration clauses constitutes “a far-reaching power play orchestrated by American corporations.”
As the Times noted, “Unfettered by strict judicial rules against conflicts of interest, companies can steer cases to friendly arbitrators.” The friendlier an arbitrator is to a company, the more likely the company is to hire that arbitrator for future cases.
Winners and losers are decided by a single arbitrator who is largely at liberty to determine how much evidence a plaintiff can present and how much the defense can withhold. To deliver favorable outcomes to companies, some arbitrators have twisted or outright disregarded the law, interviews and records show.
“What rules of evidence apply?” one arbitration firm asks in the question and answer section of its website. “The short answer is none.”
“[U]nlike the outcomes in civil court,” the Times explained, “arbitrators’ rulings are nearly impossible to appeal.”
Class-actions efforts, whether as civil lawsuits or in arbitration, seldom bring individual plaintiffs much money, but the combined impact of small individual amounts can force corporations to change their behavior. In the case that led to the Supreme Court decision, Vincent and Liza Concepcion objected to AT&T charging them $30.22 for a phone the company advertised as “free.”
Forcing the case into individual arbitration, instead of allowing it to be qualified as a class-action, effectively deprived the Concepcions of access to professional legal counsel. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” Justice Stephen Breyer wrote in his dissent. Breyer was echoing a 2004 statement by Richard Posner, a conservative federal appeals court judge: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”
In the run-up to the Senate vote, Democrats pointed to Wells Fargo and Equifax as examples of corporations that would benefit from being allowed to force consumers into individual arbitration. Wells Fargo has admitted to creating at least 3.5 million fake bank and credit card accounts using the identities of its customers. Equifax’s security failures allowed the personal information of 500 million people to be hacked, and did not inform the public of the hack for more than six months. Both companies have contract provisions requiring individual arbitration.
Many Republicans said they voted to overturn the CFPB regulation to protect small community banks from greedy lawyers filing unjust class-action lawsuit, but did not provide the sort of specific examples the Democrats did.
Sens. Grassley and Ernst have not publicly commented on their votes. Little Village emailed the offices of both senators asking why they voted to kill the regulation, but has not yet received any replies. Grassley, it should be noted, is a longtime promoter of arbitration. In 1997, the American Arbitration Association gave Grassley its Whitney North Seymour, Sr. Medal for his “outstanding contribution to the effort to encourage arbitration in place of litigation.”
The bill overturning the CFPB has been sent to President Trump, who is expected to sign it.