Bank and credit card company executives are letting out a collective sigh of “phew” this morning after the Senate narrowly killed a rule fostered by the Consumer Financial Protection Bureau that would have allowed consumers to file class-action lawsuits against them for perceived malfeasances.
Vice President Mike Pence cast the deciding vote late Tuesday, breaking a 50-50 deadlock. Lindsey Graham (R-S.C.) and John Kennedy (R-La.) had sided with the 48 Democrats in the chamber, who unanimously supported the legislation.
Implementing the rarely used — before this year — Congressional Review Act, the House passed similar legislation by a 231-190 vote in July shortly after the CFPB had approved the rule. Under the act, Congress can undo new regulations within 60 working days by a simple majority vote.
“The measure was widely loathed on Wall Street and among Republicans in Congress, who called it a gift to plaintiffs' attorneys. Critics argued the rule would trigger a flood of frivolous lawsuits and drive up credit card rates. The U.S. Chamber of Commerce and several other business groups filed suit last month to block its implementation,” Renae Merle reports for the Washington Post.
“Arbitration results in better and quicker outcomes for consumers,” Chamber of Commerce president and CEO Thomas Donohue said in a statement applauding the vote last night, Donna Borak and Ted Barrett report for CNN Money.
The CFPB “has been branded as a ‘rogue’ regulator by Republicans and stands out as one of the few watchdogs still led by an Obama appointee, Richard Cordray. The rule targeted clauses that have been inserted into hundreds of thousands of contracts — covering products ranging from credit cards to payday loans — that require customers to waive the ability to sue companies in class action lawsuits,” writes Barney Jopson for Financial Times.
“On Monday, the Treasury Department released a report opposing the rule, saying it would favor trial lawyers over consumers by prompting frivolous lawsuits,” CNN Money’s Borak and Barrett write.
“The debate over the arbitration rule put Mr. Cordray, into an odd position of publicly bickering with other federal agencies,” writes Jessica Silver-Greenberg for the New York Times. “After the Treasury report, Mr. Cordray sent a letter to Treasury Secretary Steven Mnuchin faulting the department for misrepresenting the bureau’s work. He also expressed surprise at the report, noting that during his agency’s work on arbitration, the Treasury ‘raised no issues or concerns with the bureau.’”
Consumer advocates were disheartened, if not surprised, by the Senate’s action.
“Tonight’s vote is a giant setback for every consumer in this country. 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,” Cordray said in a statement.
Cordray also “urged President Donald Trump to veto the resolution, but Trump is expected to sign it,” writes Jack Torry for the DaytonDaily News.
Indeed, the White House later issued a statement stating: “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.”
But “Tuesday’s sharp debate dealt with more than just the rule because congressional Republicans have opposed the consumer bureau since it was created in 2010 through a financial overhaul law signed by President Barack Obama,” as Torry points out.
Elizabeth Warren (D-Mass), a driving force behind the creation of the CFPB, said the action will “make it easier for financial institutions to cheat people.”
“She noted that after Wells Fargo set up fake accounts for its customers it ‘used arbitration clauses to try and escape liability.’ Equifax, she said, had used similar clauses to try and escape accountability for a cyber attack in which hackers put the personal data of half of all American adults at risk,” the FT’s Jopson reports.
“Congress’s overturning of the arbitration rule foreshadows significant changes that the CFPB is expected to face over the coming months as the Trump administration appoints a new leader to the bureau, which has been mired in partisan controversy since it was created after the financial crisis. Mr. Cordray’s term runs through next July, but many think he might step down sooner to run for governor in Ohio,” Andrew Ackerman and Yuka Hayashi observe for the Wall Street Journal.