In what can be called a major victory for banks, credit card companies, credit bureaus, payday loan outfits and Wall Street, the Republican-controlled Senate yesterday voted to nullify the Consumer Financial Protection Bureau’s (CFPB) pro-consumer rule issued back in July that banned financial institutions from weaponizing forced arbitration clauses, and allowed consumers to file class action lawsuits.
The repeal passed by a 51-50 vote, with Vice President Mike Pence casting the tie-breaker. Senators Lindsey Graham of South Carolina and John Kennedy of Louisiana were the only Republicans who voted against rolling back the CFPB’s rule, which, along with President Obama-appointed CFPB Director Richard Cordray, immediately came under heavy fire and was subject to a GOP-led repeal resolution almost as soon as it was issued. Notably, the rescission, which President Trump mislabeled as Congress “standing up for everyday consumers”—in the same motion with which he pat “community banks and credit unions” on the back—also bans similar pro-class action rules down the road.
“Wall Street won and ordinary people lost,” Cordray, who rarely comments on Congressional moves, said Tuesday, per a Reuters report. “This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company.”
After Tuesday’s vote, Cordray released a memo scorching the U.S. Department of the Treasury, claiming it misinterpreted the research the CFPB used to justify its rule removing class action waivers from arbitration agreements, and questioned Treasury Secretary Steven Mnuchin as to why the department waited until the last minute to raise concerns about the CFPB’s rule.
“As the memorandum explains, Treasury underestimated the benefits from class action settlements, underestimates the deterrence effect of class actions, overstates the cost of class actions, and misstates the impact of the Arbitration Rule on individual arbitration,” Corbray charged. “In short, Treasury’s report ignores large parts of the rule—which address the very issues Treasury raises—and misunderstands much of the underlying data.”
The Treasury’s concerns, Law360 noted in a report, were released just prior to the Senate vote on rescinding the rule.
The repeal comes at a time when still-outraged consumers and many lawmakers search for answers and avenues of recourse after September’s unprecedented Equifax data breach that compromised the sensitive information of 143 million people, not to mention the crop of Wells Fargo scandals, among other seismic events through which consumers have suffered, that have also harmed millions of individuals who were shackled to accounts for which they never signed up. (Note: Equifax, after consumers’ outrage reached volcanic proportions, removed the forced arbitration clause from the fine print for its credit monitoring service.)
The killing of the CFPB’s arbitration rule is just the latest measure taken by Republicans to roll back regulations on the financial industry.