In the News

In a Capitol Hill battle over the financial industry’s use of arbitration clauses in contracts to limit class-action lawsuits, a key undecided Republican has attracted the attention of bank lobbyists and consumer advocates.

That person is U.S. Sen. John Kennedy, Louisiana’s recent arrival in D.C. with a seat on the Senate’s banking committee. So far, as the debate has started to percolate, Kennedy has kept his cards close the chest on how he might vote on a Republican-led effort to scrap an Obama-era regulation making it far easier for customers to bring class-action lawsuits against banks, credit-card companies and other financial institutions.

The Consumer Financial Protection Agency regulation, rolled out in 2015 but not yet in effect, would bar financial institutions from including legal language in the fine print of contracts to limit the ability of customers to join class-action lawsuits.

Financial industry groups have met with Kennedy’s staff to push their case that a wave of class-action lawsuits would drain the industry and ultimately drive up prices.

Consumer advocacy groups, meanwhile, have launched TV ads on Louisiana aimed at convincing Kennedy -- and his voters back home -- that the issue amounts to leveling the playing field between powerful corporations and wronged customers.

The rollback effort has already passed the U.S. House of Representatives with overwhelming Republican support.

Louisiana U.S. Reps. Garret Graves, R-Baton Rouge; Mike Johnson, R-Bossier City; Ralph Abraham, R-Alto; and Clay Higgins, R-Port Barre, all voted in favor. U.S. Rep. Cedric Richmond, D-New Orleans, voted against. U.S. Rep. Steve Scalise, R-Metairie, who’s still recovering from a gunshot wound suffered in an attack over the summer, did not vote on the bill.

The Senate Banking Committee’s chairman, U.S. Sen. Mike Crapo, R-Idaho, is pushing a nearly identical bill in the Senate, with every Republican on the banking committee besides Kennedy signed on as a co-sponsor.

The bill, currently awaiting action in the Senate, would overturn the regulation using the Congressional Review Act -- a law that allows Congress to override new regulations within a limited time period.

Kennedy, the former state treasurer who took office as a senator in January, has so far declined to say which way he’s leaning. That’s made him one of about five Republican senators on the fence on what’s shaping up to be a razor-thin vote.

“We’re talking very closely with (Sen. Kennedy’s) office as an industry and we know the importance of his vote. It’s a key swing vote on this issue,” said Bill Himpler, executive vice president of the American Financial Services Association, which represents consumer lenders. “What we’ve heard from him is he’s weighing all the different arguments from both sides here.”

An advertisement from the consumer advocacy group Allied Progress, meanwhile, asserts that Kennedy’s vote “can protect Louisiana consumers” and “end forced arbitration.”

Karl Frisch, Allied Progress’ executive director, said they’ve launched ads in home states targeting Kennedy and four other undecided Republican senators: Alaska’s Lisa Murkowski, Maine’s Susan Collins, Ohio’s Rob Portman and Arizona’s John McCain.

“We’re heartened that Sen. Kennedy has expressed an open mind about this,” Frisch said.

Stephen Waguespack, the president and CEO of the Louisiana Association of Business and Industry, said his organization’s board traveled to Washington last week to meet with lawmakers on a number of issues. Near the top of the list? Rolling back the restrictions on forced-arbitration clauses.

“I’m hearing from a lot of banks -- community banks especially -- here in Louisiana that, if the arbitration language isn’t allowed to go forward, you’ll see a rash of class-action lawsuits coming in,” Waguespack said.

A pair of high-profile issues at financial institutions -- an ongoing scandal at Wells Fargo involving millions of accounts opened without customers’ knowledge as well as a massive data breach at the credit-reporting agency Equifax -- have served to highlight the issue, potentially ramping up pressure on the vote.

Equifax offered free credit monitoring to the more than 140 million victims whose personal information was exposed in the breach -- but initially inserted a mandatory-arbitration clause into the user agreement which would’ve stripped victims of the right to sue the company.

The company dumped the clause following public backlash. Consumer groups, however, say the Equifax case highlights the ways corporations use the clauses to evade accountability.

Kennedy led a bipartisan group of senators in writing a letter demanding that a number of federal agencies investigate the Equifax breach and the sale of millions of dollars in stock by three executives shortly after the massive problem was discovered.

“I have a lot of concerns about how Equifax handled the recent security breach, including the sale of stock by executives before the breach was publicly announced,” Kennedy said on Thursday when asked if the issue might shape his thinking on the forced-arbitration regulation. “Equifax needs to be transparent with the public, and that includes ensuring that consumers understand what legal recourses they may be giving up simply by trying to protect themselves from the repercussions of the breach.”

Kennedy has told reporters with a number of publications that he hasn’t yet made up his mind on the broader issue. A spokeswoman for the senator didn’t directly address questions about where he currently stands on the proposed legislation.

The Equifax breach is “showing how important it is for consumers to hold companies like these accountable,” said Rachel Weintraub, legislative director and general counsel with the national Consumer Federation of America.

The disputed Consumer Financial Protection Bureau regulation, Weintraub said, “would make that harder and create a more equal playing field between consumers and the financial industry.”

But business groups said the rush to file lawsuits in the wake of the breach actually pointed to the very issue forced-arbitration clauses are meant to prevent: a wave of costly litigation.

Himpler, with the American Financial Services Association, said more than 20 class-action suits have been filed in the two weeks since the breach was made public.

“Nobody knows any of the facts yet but the plaintiff bar didn’t waste any time,” Himpler said.

“From our perspective, arbitration is most beneficial ... both in terms of the consumer and the business being able to address the individual complaint,” he added.