Senate kills finance-firm class action rule
Senate Republicans voted Tuesday to strike down a sweeping new rule that would have allowed millions of Americans to band together in class-action lawsuits against financial institutions.
The overturning of the rule, with Vice President Mike Pence breaking a 50-50 tie, will further loosen regulation of Wall Street as the Trump administration and Republicans move to roll back Barack Obama-era policies enacted after the 2008 economic crisis. By defeating the rule, Republicans are dismantling a major effort of the Consumer Financial Protection Bureau, the watchdog created by Congress in the aftermath of the mortgage mess.
The rule, five years in the making, would have dealt a serious blow to financial firms, potentially exposing them to a flood of costly lawsuits over questionable business practices.
For decades, credit card companies and banks have inserted arbitration clauses into the fine print of financial contracts to circumvent the courts and bar people from pooling their resourc- es in class-action lawsuits. By forcing people into private arbitration, the clauses effectively take away one of the few tools that individuals have to fight predatory and deceptive business practices. Arbitration clauses have derailed claims of financial gouging, discrimination in car sales and unfair fees.
The rule written by the consumer bureau, which was to take effect in 2019, would have restored the right of individuals to sue in court. It was part of a spate of actions by the bureau, which has cracked down on debt collectors, the student-loan industry and payday lenders.
The arbitration rule has sparked a political battle that has taken on broader significance in the new administration. Republicans latched on to the rule as a way to cast the agency as a player in the regulatory regime that was impeding business and the economy. Shortly after the rule was adopted in July, the U.S. Chamber of Commerce pointed to it as a “prime example of an agency gone rogue.”
In recent months, financial firms and their Republican allies in Congress mobilized to defeat the rule. Some credit unions and community banks also weighed in, lodging calls to lawmakers in their home states.
Under the Congressional Review Act, Republicans had roughly 60 legislative days to overturn the rule. The House passed its own resolution in July.
Wrangling the votes in the Senate was trickier. In the weeks leading up to the vote, Sen. Lindsey Graham, R-S.C., who sponsored legislation to protect military members from being forced into arbitration, said he would not support a repeal of the rule.
Looking to head off a repeal, Democrats and consumer advocates branded the effort as a gift to financial institutions such as Wells Fargo and Equifax. Both companies, in the face of corporate scandals, used arbitration clauses to try to quash legal challenges from customers.
The rule, Democrats argued, was precisely what was needed to protect the rights of vulnerable borrowers. Regulators and judges, including some appointed by Republican presidents, have also backed the position.
Graham and Sen. John Kennedy of Louisiana broke with the Republicans to vote against the measure. But Sen. John McCain of Arizona, whom some Democrats had hoped to sway, voted to overturn the rule. The measure now heads to President Donald Trump, who is expected to sign it.
“Tonight’s vote is a giant setback for every consumer in this country,” Richard Cordray, the director of the consumer bureau, said in a statement. “As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.”
The vote late Tuesday left many Democrats dismayed.
Sen. Sherrod Brown, D-Ohio, said the Republicans had betrayed ordinary Americans.
“By voting to take rights away from customers,” he said, “the Senate voted tonight to side with Wells Fargo lobbyists over the people we serve.”