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Politics

Republicans are propping up scammers and cheaters

Catherine Rampell on

WASHINGTON -- Republicans claim to believe no company is too big to fail. The almighty market must be allowed to work its magic, and firms with defective business models should face the consequences.

Yet over the course of this year, President Trump and Congress have worked to prop up lots of defective firms. By which I mean: Companies whose business models are contingent on scamming customers, shortchanging workers and suckling the government teat.

Just this week, the Senate limited consumers' ability to fight back against financial firms that have cheated them. Which is of course an implicit subsidy to firms whose profits depend on cheating.

Right now, if a bank wrongs you -- opens a fake account in your name, say -- you might be able to move your business elsewhere. But even if you do, it's exceedingly difficult to get restitution.

That's because a common condition of doing business with a bank, credit-card company, payday lender or other financial institution is that you sign away your legal rights.

Often buried in the fine print is language saying you must resolve any dispute through arbitration, with the arbitrator sometimes selected and paid by the very same company that wronged you. More important, you and any other victims injured in the same way are also prevented from pooling your resources together to file a class action.

In practice, this means firms can expect to cheat you with relative impunity.

For example, a credit-card company can slap, say, wrongful $100 late fees on 100,000 different customers, pocketing a cool $10 million in the process. The company also knows that no solo customer is foolish enough to endure the expensive and arduous arbitration process necessary to recover a mere $100.

As you can imagine, this doesn't create great incentives for banks to treat their customers well. Which is exactly why the Consumer Financial Protection Bureau finalized a rule this summer barring the use of these so-called mandatory arbitration clauses.

Congress, with Trump's expected signature, nullified the rule this week, effectively shielding banks from facing consequences for large-scale bad behavior.

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