Wall Street Wins as Senate Blocks Consumer Protection Rule
The Senate voted 51-50 to repeal a rule that would have made it easier for consumers to sue the financial institutions that defraud them. The move is “outrageous,” says white-collar criminologist Bill Black. “It should be a national scandal, and require resignations in disgrace”
AARON MATÉ: It’s The Real News. I’m Aaron Maté. On Tuesday, the biggest news out of Washington was criticism from two outgoing Republican senators, Bob Corker and Jeff Flake of President Trump. Flake called Trump reckless, outrageous, and undignified, while Corker ended a tweet about Trump with the hashtag, #alertthedaycarestaff. The moves immediately got Flake and Corker labeled as resistance heroes, but what got way less attention is that Flake and Corker actually helped Trump do on that same day, give Wall Street its biggest legislative victory since taking office.
Corker and Flake joined Republican colleagues in voting to repeal a critical rule that protects consumers from wrongdoing by banks. The rule would have millions of people to file class-action lawsuits against financial institutions. It would have stopped these institutions from thwarting that right by inserting arbitration clauses into the fine print that few people actually read. It was a signature measure for the Consumer Financial Protection Bureau, the brainchild of Senator Elizabeth Warren. On the Senate floor, Warren spoke out.
ELIZABETH WARREN: Millions of Americans of all political parties think the game in Washington is rigged against them and this vote is exhibit A. Companies like Equifax and Wells Fargo have hurt millions of consumers, and then turn around and try to escape accountability using forced arbitration clauses. The Republican congress hasn’t done a thing to help the people hurt by Wells Fargo. The Republican congress hasn’t done a thing to help the people hurt by Equifax. Nope. Instead, tonight, they are actually taking away one of your few legal tools to hold companies like Wells Fargo and Equifax accountable. This is shameful.
AARON MATÉ: Joining me now is Bill Black, a white-collar criminologist, Associate Professor of Economics and Law at the University of Missouri, Kansas City. Professor Black, welcome. If you could explain why the rollback of this rule is such a big victory for Wall Street.
BILL BLACK: Well, first it keeps Trump’s campaign promise to bring back Christmas, because Christmas now occurs in October for the largest banks. This was the Wells Fargo Protection Act and it follows the scandal last week about Congress passing a law to protect the opioid pushers, the ones that wear lab coats, that lead to the DEA nominee, who had introduced the legislation, having to withdraw his name in disgrace.
Hereafter Wells Fargo was found to have engaged in millions of acts of predation, hundreds of thousands of them probably fraudulent, Congress has blocked the regulation by the CFPB that would have restored the rule of law to an important area of banking. It isn’t simply that you don’t read the clause, because, of course, it’s in the fine print and 50 pages of boilerplate language.
It doesn’t matter whether you read it, because they won’t do any deal with you without that clause, and they won’t do any deal without that clause because the normal rule, of course, is that we get to sue them and that we get to come together to sue them through what’s called a class-action lawsuit and this provides sufficient potential recovery that the law firm can actually do an investigation and find the facts and make public the facts.
And that can lead not only to very large, in essence, fine, against the bank that help reduce the loss to the consumer victim, but on top of that, it’s that discovery that can lead to the criminal prosecution of the elite bankers. So the elite bankers are desperate to prevent this. And this passed on a tie vote in the Senate and the constitution provides that in the event of a tie vote, the Vice President can vote to break the tie, and of course he voted for Trump.
So if any of these three supposedly heroic conservatives, the two you named, plus, of course, the other Senator from Arizona, John McCain, had voted against this bill, it would have failed and we would have had these protections restored, these normal protections that we have as American citizens that the banks are so desperate to remove that authority. So this was real profiles in cowardice by the three people being praised for their supposed courage.
AARON MATÉ: And what this means, in terms of taking away the right for consumers to file class-action lawsuits, is that now they’re subjected to forced arbitration. Can you explain what that is?
BILL BLACK: Well yeah. And it’s worse than that. That’s simply the device for making sure that you’ll have no effective remedy. Forced arbitration means you lose your otherwise normal right under the United States Constitution to bring a lawsuit and get a recovery. In an arbitration, they also provide that you can’t have any class-action arbitration. That means that you can’t effectively hire a lawyer, because it’s never … no consumer has enough dollars at stake where it’s worthwhile to hire a lawyer, compared to what they could get back in an arbitration.
And so this isn’t designed to limit, it is designed to eliminate your constitutional rights to bring a suit against people that have defrauded you. And that should be just so outrageous, that, as in the DEA example that I was talking about, it should be a national scandal and require resignations in disgrace of these kind of individuals.
AARON MATÉ: Bill, it’s a great example of why big corporations don’t like anything that harnesses collective power, because in the case of a class-action lawsuit, it means that people across the country can pool their experiences and pool their money to file one case, hire one set of lawyers to advocate on their behalf and use the power of their numbers to exert pressure and to get justice.
In this case, everybody is on their own, not just in making their case, but also in simply hiring their own lawyers, so if you’re wronged by a company, to recoup whatever you think you’re owed, you have to first pony up the exorbitant cost of a lawyer.
BILL BLACK: Look, there’s no way you’re going to do it. Again, this isn’t simply going to eliminate, it’s effectively going to eliminate your legal rights. We’re talking, in the Wells Fargo case, about situations where people may have suffered damages of $2,000, but hundreds of thousands of them suffered damages of $2,000. Well you can’t possibly hire a lawyer in those circumstances and get any recovery, and so again, you’re not limited. Your rights are eliminated.
And it’s actually worse than what you say, because it’s not even the corporations so much. It’s the senior officers that are going to get off scot free, because the lawsuit produces the discovery. The release of facts, which is the only chance of getting convictions against the elites leading those frauds, and especially with Trump personally interviewing the U.S. attorneys in the key districts to make sure that they’re the kind of folks that aren’t going to prosecute Trump, aren’t going to prosecute the cronies, not going to prosecute the big banks.
So remember, from the standpoint of the banks, many of these frauds actually hurt the bank. They make the officer rich, but they hurt the bank. And if the rule had gone into effect, it would have been a very good rule for honest banks and honest bankers, who otherwise have to compete with the Wells Fargo’s of the world who run these massive, fraudulent and predatory operations and find it so difficult to compete.
So this was actually a bill that was good for honest, I’m sorry. Not the bill, but the rule of the CFPB would have broken what we call a Gresham’s dynamic. In a Gresham’s dynamic, because cheaters prosper, market forces become perverse and bad ethics drives good ethics out of the marketplace.
So the rule of the CFPB was not only good for consumers, it was good for honest banks and honest bankers and that’s why the senior officers at places like Wells Fargo made their absolute top priority destroying this regulation and all those supposed heroes in the Republican party, with two exceptions, neither of which anybody thinks are heroes, got together to give the bankers a Christmas in October.
AARON MATÉ: Well, Bill, one hint at why they did that is a figure I read in The Intercept which is that the lawmakers who voted for this measure, to repeal this rule, have received more than a hundred million dollars in campaign contributions over the course of their political careers from the financial industry. I’m going to read to you a quote from the Washington Post that talked about why this is such a big victory for Wall Street, and get your response. The post says, “With the Senate’s vote, Wall Street is beginning to reap the benefits of rolling the Trump Administration focus on rolling back regulations it says are strangling the economy.” Bill, your response to that, “strangling the economy.”
BILL BLACK: Again, it’s not Wall Street that benefits. It’s the senior officers in Wall Street. These regulations didn’t have anything to do, nothing on this dimension of supposedly strangling the economy. The banks have been insanely profitable. Growth has been very substantial. The thing that has limited growth, that has limited bank profits, has been the fraud by the senior officers, so it’s exactly the opposite of what they say. The rule was good for consumers, but the rule was also good for honest bankers and honest banks. This repeal bill was the highest priority of the absolute worst bankers in the United States of America.
AARON MATÉ: And they got their wish. We’ll leave it there. Bill Black, white-collar criminologist and Associate Professor of Economics and Law at the University of Missouri, Kansas City. Thank you.
BILL BLACK: Thank you.
AARON MATÉ: And thank you for joining us on The Real News.