Donald Trump won the presidency on the back of his ‘drain the swamp’ rhetoric, rallying the rust belt against ‘crooked’ Hillary Clinton, not quite the wolf of Wall Street, but possibly the witch of it.
Yesterday, suspicions held by some people that the Republicans weren’t exactly the champions of middle America were partially vindicated, after the Senate’s decision to overturn a piece of legislation that allowed ordinary Americans to sue banks, rather than being forced to accept the result of an arbitration process. The rule was overturned by Vice President Mike Pence’s deciding vote in a 51-50 vote.
The Senator for Idaho, Republican Mike Crapo, used the 1996 Congressional Review Act, which gives legislators a limited window where they can block regulations before they go into effect. The regulation had been widely criticized by Wall Street banks, whose lobbyists had argued that allowing ordinary people to take banks to court would drive up credit card rates. The legislation had been proposed by the Consumer Financial Protection Bureau (CFPB), a body established to fight for the interests of ordinary consumers.
Interestingly, the CFPB’s proposed legislation had support from the voters of both political parties. The right-leaning pressure group American Future Fund carried out a poll that showed that 64 percent of Republicans supported the rule. The political impact of the decision is unclear – but voters who elected President Trump on the basis that he wouldn’t be beholden to Wall Street bankers might be left scratching their heads. Wasn’t this the man who was supposed to stand up for the little guy?
So, what are the arguments for and against the rule? Well, the lobbyists for banks argue that the amounts won by consumers from the arbitrations process are much larger than the amounts won through suing the banks directly. This, strictly speaking, is true. According to the CFPB’s study, the average amount won through arbitration is significantly larger than the amount won through a class action lawsuit. But to understand why, you need to look into the effectiveness of both types of consumer protection.
Due to the fact that it’s difficult to win through the arbitration process, consumers are more likely to take this course of action only if they’re able to win larger sums of money. The fact that the average amounts won by consumers is higher for the arbitration process is indicative of the fact that it’s a less effective tool for consumers, not a more effective one.
The bottom line on this Senate vote is that it’s undoubtedly a big win for Wall Street. The Republicans have used an arcane legislative tool to overturn a law that Wall Street didn’t like. CFPB’s director Richard Corday will end his term in mid-2018, and Trump is likely to appoint then a new director much more sympathetic to the interests of Wall Street banks. Basically: it’s The Swamp 1, Consumers 0.