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Published: Sat, October 28, 2017
Economy | By Melissa Porter

Trump administration sides with Wall Street on arbitration rules

Trump administration sides with Wall Street on arbitration rules

Critics, however, argue consumers should have the right to take legal action against unscrupulous banks, and say forced arbitration makes it nearly impossible for clients to defend themselves from misconduct from their financial institutions.

CFPB Director Richard Cordray, shown on Capitol Hill in 2013, called the vote a "giant setback" for consumers that preserves a "two-tier" system of justice where consumers are shut out of court.

With this mind, as the New York Times reported in September, the Consumer Financial Protection Bureau (CFPB) has finalized a rule "prohibiting companies from forcing customers into arbitration over disputes, a method that companies have used to block class-action lawsuits".

Class-action lawsuits were necessary, Cordray and consumer advocates said, because numerous bank charges are too small for an individual customer or attorney to bother filing a lawsuit over, yet can multiply to millions of dollars in penalties for customers - and millions in profits for lenders.

Nevertheless, Trump is apparently eager to sign the repeal, with a White House statement saying that the rule left Americans with "fewer options for quickly and efficiently resolving financial disputes". Mike Crapo, an Idaho Republican voting to rescind the rule.

Proponents of the action hailed it as a win against trial lawyers, a victory for community banks and a benefit to consumers who won't pin their hopes on class-action lawsuits that typically could bring winners less than $33 apiece.

Senators passed the measure by a vote of 51-50.

The passage of Congress' joint resolution has been coined one of Wall Street's and other financial institutions' biggest feats thus far under the Trump administration, and the resolution may also benefit consumers. In both cases, the companies used arbitration agreements to try and protect themselves from liability despite operational breakdowns that hurt consumers.

"Arbitration will prevent major liability over small transactions", he said. Keep track of all documents related to your case and take good notes during your conversations with your financial services provider, attorney Levin says. The Trump administration had fought to stop the rule from taking effect as planned, in March 2018.

This would mean businesses would have to spend "more than $500 million in additional legal defense fees, $330 million in payments to plaintiffs' lawyers, and $1.7 billion in additional settlements", said the report, considered unusual because it pitted one federal agency against another. Without it, the millions affected by the historic security breach may be disallowed from related joining class action lawsuits.

Wells Fargo, too, bowed under public pressure and agreed to face a class-action suit from the people it fraudulently billed. That comes to $32.35 apiece.

"A business would never enter into an agreement like this, whether with suppliers or other companies", Prentiss Cox, a University of Minnesota Law Professor, says. A CFPB study found that only two percent of consumers with credit cards would pursue legal action in a small-dollar dispute.

Wiping out the rule would affect tens of millions of Americans who often don't know they are covered by an arbitration clause when they sign up for a credit card, checking account or prepaid card. Equifax's reputation has been damaged by a data breach that resulted in the theft of personal data on almost half the USA population, while Wells Fargo was fined by regulators for opening millions of accounts without customers' approval.

If the rule had been fully in effect when Equifax offered the service, it would have been banned from including the clause.

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