Last Wednesday, November 1, President Trump signed a repeal of the Consumer Financial Protection Bureau’s (CFPB) rule on forced arbitration. This may not sound like a big deal. Bankers and credit card executives even make it sound like a good deal. And it is – but not for you. In fact Trump’s signature on this repeal has far-reaching ramifications for every single person in this country with a bank account or a credit card.
Let’s just imagine for a moment that you put your hard-earned money in a checking account at a local bank. All good. But then one weekend you decide to take advantage of a Black Friday sale. You start out your Saturday with a coffee, then head to the mall where you buy a new laptop case, that cashmere sweater you have been looking at, a few throw pillows for the den and – last minute – that new flat screen TV. When you get home you add up the purchases and realize you overspent by $15. No big deal, right? You’ll make a deposit in the morning and begrudgingly accept the overdraft fee you know is coming.
But then let’s imagine that the bank sees your miscalculation as a financial opportunity. And instead of charging you ONE overdraft fee for the weekend splurge, the bank reorders your purchases so that the expensive items withdraw first, depleting your account before the smaller items hit, thus causing you to have several overdraft fees rather than just one. Sorta’ like stealing.
Unbelievably, this exact scenario (reordering purchases) happened in a widespread manner until a class action lawsuit forced the Big Bank abusers to stop and repay consumers for the extra overdraft charges. Bank of America ponied up $410 million in 2011 and JPMorgan Chase agreed to pay $110 million in 2012. Other banks also paid up and stopped this practice.
But were it not for the ability of these consumers back in the early 2000’s to use class actions to force corporate accountability, the practice of reordering charges might still be going on. And anyone wishing to challenge it now would be forced to use “arbitrators” appointed by the abusing banks. Not exactly a level playing field.
Mandatory arbitration, a practice that the CFPB has fought but which Trump has now repealed, effectively pits you, alone, against a team of corporate lawyers. It doesn’t matter how egregious the wrong is or how many people have been hurt. You and other consumers cannot band together and have your day in court through a class action lawsuit.
Not surprisingly, Trump was joined this week by the heads of several banking lobbying groups that opposed the CFPB rule against arbitration, contending it would eliminate less expensive options for consumers while making trial lawyers rich.
We beg to differ.