Big win for banks over consumers who seek to sue
The U.S. Senate moved Tuesday to overturn a rule aimed at making it easier for customers to sue banks, handing financial firms a big win in their battle against post-crisis regulations.
Majority Republicans pushed through a reversal of Consumer Financial Protection Bureau limits on mandatory arbitration in a 51-50 vote.
Vice President Mike Pence was called in to cast the tie-breaking vote. The move using Congress’s power to overturn agency rules follows a similar vote by the House in July.
The CFPB rule announced in July would limit companies’ ability to impose arbitration agreements on customers in financial contracts, making it easier for aggrieved parties to join together in class-action lawsuits. Democrats and other supporters of the rule argued that it would give consumers an important protection against mistreatment by banks.
The Senate vote seals a significant victory for Republicans in their longstanding campaign to rein in the consumer bureau, which they have fought since it was created as an independent agency by the Dodd-Frank Act. The arbitration rule stems from a requirement in the 2010 law that the CFPB study the issue.
Republican President Donald Trump applauded the outcome.
"By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy," the White House said in a statement.
Financial firms lobbied for years against the rule, which they say would make lending more expensive while doing little to help consumers. Republicans lawmakers have long complained that the CFPB inhibits economic growth by burdening lenders with red tape and that its director, Richard Cordray, consistently oversteps the agency’s mandate.
“Tonight’s vote is a giant setback for every consumer in this country," Cordray said in a statement. "Wall Street won and ordinary people lost. This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company."
The move to overturn the arbitration rule employed the Congressional Review Act, which enables lawmakers to undo regulations by majority vote within 60 working days from when they are announced. Republicans previously used the mechanism to overturn other Obama-era measures, including parts of the Affordable Care Act.
The CFPB rule targets clauses that are often buried in the fine print of contracts that consumers sign when they get credit cards or open checking accounts. The language bars customers from banding together to file class-action suits, instead requiring them to settle disputes through arbitration. Companies would have to remove such clauses from contracts by March.
"This bill is a giant wet kiss to Wall Street. Bank lobbyists are crawling all over this place, begging Congress to vote and make it easier for them to cheat consumers," Senator Elizabeth Warren, the Democrat from Massachusetts who led opposition to the bill, said before the vote.
The U.S. Chamber of Commerce and other industry groups have sued the CFPB, arguing that the regulation was based on a flawed study. The rule also has been at the center of public clash between Cordray and the Trump administration. Acting Comptroller of the Currency Keith Noreika and other officials have challenged how it was created.
The Treasury Department also blasted the measure in a report released on Monday.
"The elected representatives acted to stop a rule from going into effect that would have likely increased the cost of credit for hardworking Americans and made it more difficult for small community banks to resolve differences with their customers without achieving the rule’s goal of deterring future financial abuse," Noreika said in a statement after the vote. "The action by Congress is a victory for consumers and small banks across the country."