Populist Trump Administration Continues to Drain the Swamp

This is a terrific piece about the Trump administration seeking to undo a major new CFPB regulation:

But much like the bulk of Trump’s agenda, that assault remains in the aspirational phase, and the agency continues to do its work. Earlier this month, the CFPB released a major new rule, flat-out barring financial institutions from using forced arbitration clauses in consumer contracts to stop class-action lawsuits.

Now, Trump has sent out his lead attack dog to overturn the arbitration rule — a former bank lawyer who has used the very tactic the CFPB wants to prevent.

Class-action lawsuits are often the only way abusive behavior is checked. Take one of the more flagrant examples relating to overdraft fees. Millions of Americans are painfully familiar with the little perforated postcard that kindly arrives in the mail, courtesy of your financial institution, informing you that you have overdrawn your bank account and have been assessed a fee. Or, sometimes, you get three of them in the mail.

In order to make sure you get three and not one, banks in the past would re-order your transactions. The case of Gutierrez v. Wells Fargo is instructive here: a federal class-action case in California, the suit charged the bank with debit card reordering, or altering the sequence of debit card withdrawals to maximize overdraft fees. So if a cardholder with $100 in their account made successive withdrawals of $20, $30, and $110 over the course of a day, instead of getting hit with one $35 overdraft fee, Wells Fargo would reorder the transactions from high to low, thus earning three fees.

The plaintiffs won a $203 million judgment in 2010. But in an appeal before the 9th Circuit in 2012, Wells’ lawyers argued that a U.S. Supreme Court ruling in 2011, AT&T Mobility v. Concepcion, gave Wells Fargo the right to compel arbitration and quash the case, even after the judgment was rendered.

The 9th Circuit ruled that Wells Fargo never requested or even mentioned arbitration for five years of litigating the case. Only after losing in court and getting a potential lifeline from the Supreme Court did the lawyers take the shot. “Ordering arbitration would … be inconsistent with the parties’ agreement, and contradict their conduct throughout the litigation,” the court ruled.

Wells Fargo eventually paid California customers, but only after six years of appeals. Yet the company is still trying to use arbitration to quash a similar class action on overdraft fees, which would affect consumers in the other 49 states. Over 30 banks have been sued for this conduct, and every one of them settled the case except Wells Fargo.

Banks have a lot riding on the CFPB rule. Luckily for Wells Fargo, a former senior attorney of theirs is now a top federal regulator. In fact, Keith Noreika worked on that class-action defense in Gutierrez v. Wells Fargo before becoming the acting chair of the Office of the Comptroller of the Currency.

In May, President Trump hired Noreika to take over OCC, in an unusual arrangement where he would serve as a “special government employee,” retained to perform “temporary duties” for not more than 130 days, and exempt from most ethics rules or Senate confirmation.

As always, the clear lesson is that Both Sides Do It but the Democrats are worse.