The banking industry had been lobbying hard to roll back the regulation from the Consumer Financial Protection Bureau.
WASHINGTON (AP) — The White House is welcoming a congressional measure killing the ability of millions of Americans to band together to sue bank or credit card companies to resolve financial disputes in a major win for Wall Street.
The Senate narrowly voted late Tuesday night to nullify the rule, with Vice President Mike Pence casting the final vote to break a 50-50 tie. The measure now goes to President Donald Trump for his signature.
“President Donald J. Trump applauds the Congress for passing,” the resolution, the White House said in a statement shortly after the vote that highlighted its own Treasury Department report criticizing the rule. “The rule would harm our community banks and credit unions by opening the door to frivolous lawsuits by special interest trial lawyers.”
The banking industry had been lobbying hard to roll back the regulation from the Consumer Financial Protection Bureau. The bureau had moved to ban most types of mandatory arbitration clauses found in the fine print of agreements consumers often enter into when opening a checking account or getting a credit card.
The vote reflects the effort of the Trump administration and congressional Republicans to undo regulations that the GOP argues harm the free market.
Democratic lawmakers said the CFPB’s rule would have given consumers more leverage to stop companies from financial wrongdoing. They cited the sales practices at Wells Fargo and the security breach at credit company Equifax as examples of misdeeds protected through forced arbitration.
“So who does forced arbitration help? Wall Street banks and other huge corporations that never pay the price for cheating working people,” said Sen. Sherrod Brown, D-Ohio.
Richard Cordray, director of the consumer bureau, said: “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.”
Republicans said the arbitration system has worked wonderfully for consumers. They said the payouts for the average consumer in arbitration cases are generally much larger and come more quickly than when compared to the relief gained through class-action lawsuits.
“The effort to try to characterize this as some devious system that has been created to try to stop consumers from having access to fairness is simply false,” said Sen. Mike Crapo, the Republican chairman of the Senate Banking, Housing and Urban Affairs Committee. “We have a very fair system that has been working for over 100 years in this country.”
Crapo said the average pay-out for consumers in class-action lawsuits against financial companies was just $32, but lawyers stood to make millions.
Democrats argued that consumers generally don’t have the time and means to pursue claims in arbitration, and since most disputes revolve around small amounts, they typically just give up. They said banks and other financial firms know that in the end they won’t have pay a real price for taking advantage of a consumer.
But class-actions would serve as a powerful tool for consumers, they said.
“Once again, we’re helping the powerful against the powerless,” said Senate Minority Leader Chuck Schumer, D-N.Y., as the Senate neared the vote, sensing the Democrats would lose.
Two Republicans sided with Democratic lawmakers to keep the rule — Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana.
The advocacy group Consumers Union and several veterans groups, including the American Legion, lobbied to keep the rule. They said consumers would still have the option to use arbitration to resolve a dispute, if both parties want to go that route.
“Without the CFPB rule, consumers can be forced into a rigged system where they have no recourse. It’s a disgrace,” said Linda Lipsen, CEO of the American Association for Justice, an advocacy group that works to improve the legal system.
The American Bankers Association cheered the Senate vote. “Today’s vote puts consumers first rather than class-action lawyers,” said Rob Nichols, the group’s president and chief executive officer.