The Consumer Financial Protection Bureau took a big step last week to stack the deck in favor of the 1 percent of Democratic donors.
It proposed a new rule changing financial services agreements in a way that directly contravenes recent Supreme Court precedent, but will help trial lawyers afford the new yachts they crave. That, and make large donations to the Democratic National Committee.
The bureau, an agency created by the Dodd-Frank financial reform bill and unaccountable to Congress or anyone else, is trying to change settled law. It underscores the wisdom of Republican efforts to prevent that bill from passing, and to delay confirmation of President Obama’s pick to head the bureau, and of why it should be scrapped.
The Federal Arbitration Act of 1925 states that when disputes come before the federal courts under contracts requiring arbitration, the courts must send those disputes to arbitration. In the famous 2011 Supreme Court case AT&T Mobility v. Concepcion, and in two subsequent cases like it, the court upheld these arbitration clauses.
The Concepcions, whose dispute was over just $30.22, had agreed in their contract to seek recompense through that contract’s relatively generous arbitration process rather than in a class action complaint, which would not get them much more than their 30 bucks, but could have made a bundle for some enterprising trial lawyer.
The legal legitimacy of arbitration clauses is not a minor detail. Many conveniences that people take for granted and even depend on in the modern world, such as reliable cellphone service and easy access to consumer credit, would not be possible if Congress had not created that legal framework long ago.
The purpose of this new and illegal rule from the bureau — it’s the brainchild of Sen. Elizabeth Warren, not coincidentally — is obviously to reward plaintiffs’ lawyers, who are perhaps the most generous and reliable corps of donors to Democrats. Trial lawyers loathe arbitration clauses because they offer parties a convenient and inexpensive way of settling disputes.
Lawyers want disputes to be complex and expensive because that’s the way they can best make an opulent living. It’s so much better for them if disputants join class-action lawsuits against deep-pocketed businesses whose treasuries can be plundered.
Cellphone providers, credit card issuers, cable providers and Netflix are just a few examples of companies that require consumers to sign arbitration clauses. Wisely, such companies would rather settle your dispute with them individually, even if it means doing so on terms more generous to you, than be hauled repeatedly into court.
These companies’ services might not exist, operate at the same scale or be nearly as affordable if their managers had to live in constant fear of mostly frivolous but always costly class-action litigation.
Trial lawyers find such disputes to be especially attractive. Just get a sympathetic jury to agree that Netflix overcharged or under-served 30 million customers by 20 cents a month for six months, and you might well collect a $15 million jackpot as your legal fee. (Oh, and yeah, your clients might get their $1.20 credited back to them as an afterthought.)
Who, exactly, benefits from this? The question answers itself — trial lawyers and the party that panders to them.
The Consumer Financial Protection Bureau, emboldened by its lack of accountability, is now blatantly helping those trial lawyers to do an end run around the Supreme Court. Their proposed rule would prevent financial firms from using arbitration clauses to avoid class actions. Were they to succeed, more trial lawyers would strike it rich, and the availability of consumer credit for everyone else would be curtailed.
The trial lawyers whom the bureau rule would enrich have little concern for how their behavior affects people’s day-to-day lives. They don’t mind crippling America’s markets if it means they can wring a buck or two billion from the sweat of other mens’ brows.
But the courts do not have to stand by and watch an unelected, unaccountable agency give them new opportunities to do it. This disgraceful rule should be struck down.
