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Yesterday Congress overturned a rule that allowed consumers to hold financial companies accountable for fraud and misconduct.  Vice President Mike Pence was the tie breaking vote in the Senate.  The previous rule, established by the Consumer Financial Protection Bureau (which came into existence after the financial crash of 2008), banned forced arbitration clauses from being hidden in the fine print of financial contracts.  Now, multi-billion dollar financial institutions, such as Well Fargo and Bank of America, can commit outright fraud on their customers with no repercussions.  Let me give you a hypothetical example of how this works:

Suppose that Well Fargo, or American Express, or Bank of America (you get the point) begins charging each of their customers a hidden, illegal fee of $7 dollars per month. The fraud is discovered two years later.  The total amount of money that the institution stole from its customers amounts to $25 million, but the average loss to each customer is only $126.  Under the previous CFPB rule, the customers could join together and file a class action lawsuit against the bank, and they would likely prevail.  Sure, the customers would not recover the entire $126.  A portion of the loss, usually around 40%, will go to pay for attorney fees and costs.  But, the collective action against the bank for $25 million will certainly deter future bad or fraudulent conduct and will provide some relief to the defrauded customers.

Under the new law championed by the GOP (except for Lindsey Graham and John Kennedy, who voted against it), class actions will be prohibited and each person must bring an individual claim through an expensive and rigged arbitration system.  So, in reality, no one (or very few people) will actually file claims.  The result?  The defrauded customers get nothing and the bank is rewarded to the tune of $25 million for its fraudulent misconduct.  Yes, the bank may stop this particular fraudulent practice but given the financial profitability of ripping of its customers, fraudulent behavior is bound to be repeated.  As the old saying goes, conduct rewarded is conduct repeated.



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