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Senate approves repeal of CFPB arbitration rule in win for financial institutions

Senate approves repeal of CFPB arbitration rule in win for financial institutions

The Consumer Financial Protection Bureau put a rule in place in July that prevented banks and credit card companies from adding a clause to their customer contracts that prevent customers from filing class-action lawsuits and instead require them to go resolve any disputes through a third-party arbitration. Even then, however, the vote was close.

The vote is widely being regarded as one of the first major wins for the financial services industry under the new administration.

CFPB Director Richard Cordray, a Democrat appointed by former President Barack Obama, rarely comments on congressional action but on Tuesday night said "Wall Street won and ordinary people lost". Once she voted in favor of repeal, Pence stepped in to break the tie, approving the repeal measure 51 to 50. Compare that to the $360,000 that Arbitrators awarded to 78 consumers in two years. Likewise, the U.S. Department of Treasury concluded that "t$3 he Rule will impose extraordinary costs -based on the Bureau's own incomplete estimates", "will effect a large wealth transfer to plaintiffs' attorneys", and will "upend a century of federal policy favoring freedom of contract to provide for low-priced dispute resolution". "Overturning the CFPB's arbitration rule ensures consumers retain the tools they need to receive relief without going through long, drawn-out, costly court proceedings - where no one benefits except trial lawyers".

"And it actually increases the benefit that flows to the consumer, as opposed to the alternative, which is class action lawsuits, which enriches lawyers where consumers get pennies on the dollar".

The House has already passed a repeal of the rule. The Office of the Comptroller of the Currency ("OCC") sharply criticized the CFPB's report as flawed and stated that, properly interpreted, the underlying data showed that "c$3 onsumers face significant risk of a substantial rise in the cost of credit" as a result of the proposed rule. If Equifax, Wells Fargo, or others in the industry want to block class-action suits and force aggrieved consumers into arbitration, that's just fine with Trump's Treasury Department. "No one", said Sen. "That's exactly what the banks are counting on".

The CFPB said Treasury's report "rehashes industry arguments" that were "solidly refuted in the final rule."Banks, credit unions, and other companies file class action lawsuits to pursue justice when they are harmed as a group, and our rule restores consumers' right to do the same", CFPB said". Sherrod Brown, D-Ohio, on the Senate floor during debate.




Equifax relented and said it dropped the arbitration requirement after national outrage. He should know: His employer, or at least its retail banking arm, has been suffering its own credibility crisis after it created millions of fake accounts to get more fees out of its customers.

"If there's no forced arbitration clause in your contract, you have a choice.

Members of Trump's administration have relentlessly assailed the regulation, and Acting Comptroller of the Currency Keith Norieka said on Tuesday the Senate's action stopped a rule "that would have likely increased the cost of credit for hardworking Americans and made it more hard for small community banks to resolve differences with their customers".

Though the arbitration rule is dead, you could still use a group lawsuit to challenge your bank or credit card company. "It means that when big banks or payday lenders abuse thousands of people, we have the right to a hearing in a public setting by a neutral judge who must listen to the evidence on both sides, and make a decision consistent with the facts and the law that can hold up to review".

Ian McKendry is the Congress reporter for American Banker.

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