Sen. Cotton co-sponsoring legislation to keep arbitration rules at bay, Boozman supportive

U.S. Sen. Tom Cotton, R-Ark., is putting his support behind a Senate resolution that a progressive Washington, D.C.-based advocacy group says will help big banks and other financial concerns take advantage of consumers by forcing them into secret arbitration hearing that deny access to civil courts. U.S. Sen. John Boozman, R-Ark., supports the measure but is not a sponsor.

The U.S. Senate is expected to vote any day now on Senate Joint Resolution (SJR47) ahead of committee hearings early next month to question Wells Fargo and Equifax executives on the recent fallout from a massive fake account scandal and hacking incident that has impacted millions of consumers, including those in Arkansas.

In a statement sent to Talk Business & Politics, Cotton confirmed he is backing the Senate bill that would quash the Consumer Financial Protection Bureau’s 377-page rule that would halt banks and other financial concerns from including mandatory arbitration clauses in consumer financial agreements. The rules would also require those companies to reveal the details of those closed-door proceedings to the public.

The U.S. House has already approved a similar measure. HJR 111 was passed July 25 by a vote of 231-190 with all four Arkansas representatives voting for it. U.S. Rep. French Hill, R-Little Rock, was one of 34 co-sponsors.

“The only people helped by the CFPB arbitration rule are trial lawyers,” Sen. Cotton said. “It treats Arkansans as if they are incapable of making business decisions in their own best interests and ignores the consumer benefits of arbitration, which is 12 times faster than litigation and, on average, results in bigger awards for the people who bring disputes.”

A spokesperson for Sen. Boozman confirmed his support for overturning the CFPB’s rule, saying that “keeping the rule will cost consumers and only stands to benefit trial attorneys.”

HEAVILY SCRUTINIZED
The arbitration rules have come under scrutiny in recent weeks after Wells Fargo revealed in late August that it had found that the bank’s sales team had opened an additional 1.4 million fake accounts without consumers’ knowledge in order to pad company sales goals. That internal probe was expanded in April to more than 165 million retail banking accounts opened from January 2009 through September 2016, identifying a new total of about 3.5 million bogus consumer and small business accounts.

Talk Business & Politics recently completed a series of stories on the CFPB arbitration rules, the Wells Fargo fake account scandal, and revelations that the Arkansas Insurance Department is looking into allegations that Wells Fargo illegally forced some of its Arkansas car loan customers to purchase auto insurance policies without their knowledge.

According to Wells Fargo officials, the car insurance scheme violated the disclosure requirements of five states — Arkansas, Michigan, Mississippi, Tennessee and Washington – requiring Wells Fargo to notify customers of the insurance before it was imposed. The West Coast financial services giant and state insurance regulators have not yet revealed how many Arkansans were impacted, although the New York Times has reported that 100,000 consumers were swept up in the five-state scandal, many of whom had their cars repossessed or credit ruined.

Wells Fargo was also caught in other illegal activity or settled lawsuits where it allegedly defrauded minorities, seniors, mom-and-pop businesses and active military personnel that came to the bank for mortgages, loans and other financial products. For its part, credit report giant Equifax Inc. revealed on Sept. 7 that a hacking incident in late July had exposed Social Security numbers, birthdates and other confidential data for more than 143 million people. Former chief executives for Wells Fargo and Equifax have stepped down because of the scandals.

To help consumers impacted by such scandals, CFPB Director Richard Cordray put in place a new rule this summer to ban banks from using mandatory arbitration clauses to deny groups of people their day in court.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” said Cordray, head of the consumer watchdog agency created by the Obama Administration after the 2008 financial crisis. “These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

Like Cotton, Boozman and Hill, Arkansas Attorney General Leslie Rutledge is also a vocal supporter of the Trump Administration’s efforts to force the CFPB to withdraw its arbitration regulations. Rutledge wrote a letter to White House Budget Director Mick Mulvaney urging him to conduct a cost-benefit analysis of all recent and pending CFPB rules, including the ban on arbitration pacts within the consumer finance products and services market. In August 2016, after a private meeting with Cordray in Little Rock, the Arkansas AG wrote a direct letter to CFPB to withdraw the ban on the arbitration rules.

D.C. GROUP SAYS GOP LETTING WELLS FARGO, EQUIFAX OFF THE HOOK
Earlier this week, Washington, D.C.-based Allied Progress sent out a statement criticizing Cotton for backing SJR 47, saying the Senate legislation would put the interests of big banks and other financial firms ahead of consumers who often are not aware they have signed such arbitration clauses when opening a bank account, buying a car or getting a mortgage.

“Sen. Tom Cotton is a co-sponsor of this legislation. That’s not surprising, given that he has taken over $3 million from the financial industry as a whole,” said Karl Frisch, executive director of the left-leaning advocacy group. “If Cotton is successful, the vote can justifiably be seen as giant gift to Equifax and Wells Fargo executives who are slated to testify in front of the Senate next week.”

According to Frisch, Wells Fargo has forced arbitration clauses in loans issued to Arkansas’ 14,193 active-duty service-members, reservists and veterans. He also said that 1,310 Arkansas consumers were impacted by the fake account scandal.

Wells Fargo is also facing several class action lawsuits over the arbitration rules where the bank allegedly changed the order of checking and debit card transactions that often caused those accounts to be overdrafted, thus triggering repeated fees and charges that were largely responsible for billions of dollars in profits the company posted in the post-recession era.

That case, in the 11th U.S. Circuit Court of Appeals in Atlanta, which includes Wells Fargo customers in Arkansas and 48 other states, was consolidated after a federal judge in Florida last year declined the bank’s request to force the claims into private negotiations. A month ago, Wells Fargo appealed that ruling.