WASHINGTON (Reuters Breakingviews) - Banks just scored a victory against disgruntled customers – and in the longer term, against themselves. The U.S. Senate has killed a rule allowing groups of consumers to sue financial firms and card issuers, even when the small print of their contracts prohibits them from doing so. Clauses that keep customers out of the courts have caused reputational problems for Wall Street before, and will again.
Industry lobbying paid off when the Senate overturned a Consumer Financial Protection Bureau rule on Tuesday night. The measure was proposed by Richard Cordray, the head of the CFPB appointed by former President Barack Obama, who argued consumers need protection from fine print forcing them to rely on private arbitration, which often favors the firms, when they feel they have been wronged. Banks said the CFPB rule would increase costs for consumers.
Their celebration could be short lived. Credit-scoring agency Equifax had to drop its arbitration clause for 145.5 million consumers affected by a data breach disclosed in September, after public pressure and threats from state attorneys general. And after U.S. lender Wells Fargo opened 3.5 million unauthorized accounts for customers, a bipartisan group of lawmakers slammed the bank for wanting to settle disputes through arbitration.
Before the vote, the industry had been largely enjoying a respite from the wrath of Democrats and other critics in Washington. Wall Street wasn’t even mentioned in the Democratic platform for the 2018 midterm elections. Instead, the party focused on big tech companies like Facebook, questioning whether they need further antitrust regulations.
The Senate vote reignited their ire, with Senator Elizabeth Warren calling it “a giant wet kiss to Wall Street.” Bashing banks is also still in style among the populist base that elevated Donald Trump to the presidency. The shrinking political target on banks’ back is set to grow again.
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