House GOP Votes to Kill Rule That Makes It Easier to Sue BanksBy
Republicans approve bill that would kill CFPB’s regulation
Legislation on consumer arbitration clauses now goes to Senate
House Republicans voted Tuesday to repeal a controversial regulation that would allow more consumers to sue their banks.
In a 231-to-190 vote, lawmakers passed legislation that would overturn a Consumer Financial Protection Bureau rule that restricts lenders from forcing customers to settle disputes through arbitration. The bill now heads to the Senate, where it faces a tougher path because it will probably fail if just three Republicans vote against it.
The regulation has faced a litany of criticism from bank lobbying groups and GOP lawmakers since the CFPB approved it earlier this month. While the CFPB says the rule will help ensure that consumers get their day in court, opponents argue that it risks exposing lenders to a wave of frivolous lawsuits that will mostly enrich trial lawyers.
To try to overturn it, congressional Republicans are relying on an obscure law called the Congressional Review Act, which requires only a simple majority vote to pass. Senate Republicans, led by Banking Committee Chairman Mike Crapo, have already introduced their own version of a bill that reverses the CFPB rule.
Senator John Kennedy of Louisiana is the only Republican on the banking panel who didn’t co-sign Crapo’s bill. Kennedy said in an interview Monday that he hasn’t decided how he will vote because he hasn’t yet had a chance to review the issue.
The CFPB has been scrutinizing the forced-arbitration clauses that banks include in contracts with consumers for years. Its rule was spearheaded by CFPB Director Richard Cordray, an Obama administration holdover who GOP lawmakers have urged President Donald Trump to fire. In issuing the regulation, Republicans say Cordray abused his authority because he based it on what they contend is a flawed study.
If the rule withstands Republican attacks, lenders might have to revise their consumer contracts as soon as March. One of the biggest changes is that customers would be able to join together to file class-action lawsuits against banks.
Financial firms say that would be a mistake, arguing that arbitration clauses help avoid costly and unnecessary suits. They also say arbitration benefits consumers because it typically resolves grievances faster and for less expense than litigation does. Trade groups including the Financial Services Roundtable and the U.S. Chamber of Commerce sent a letter to congressional Republicans earlier this week backing their efforts to kill the CFPB rule.
Democrats accused GOP lawmakers of doing Wall Street’s bidding.
“We are here on an emergency basis because the Republicans have seen the latest rule that’s come out of the consumer agency and they are determined to act on behalf of the big financial institutions,” Senator Elizabeth Warren, a Democrat from Massachusetts, said at a Tuesday press conference.
Republicans have 60 legislative days to reverse the rule using the Congressional Review Act. Separately, the acting Comptroller of the Currency, Keith Noreika, has taken steps to potentially delay the rule. The Dodd-Frank Act gives Noreika and other regulators the power to petition CFPB rules to the Financial Stability Oversight Council -- a panel of regulators led by the Treasury secretary -- if there’s evidence it puts the financial system’s overall safety at risk.