Vice President Mike Pence cast the tie-breaking vote Tuesday night to kill the Consumer Financial Protection Bureau’s new arbitration rule.
The vote, which came in at 51 to 50, with Senators Lindsey Graham, (R–SC), and John Kennedy, (R–La), siding with the Democrats and voting to keep the rule.
The House already voted to revoke the rule at the end of July, meaning all that’s needed at this point is a signature from President Donald Trump, who is expected to sign.
The arbitration rule would ban companies from using mandatory arbitration clauses, allowing consumers to participate in class-action lawsuits.
However, it has been met with strong resistance from every front. The latest attack comes from a new report from the Treasury, which said the rule would impose extraordinary costs on companies, and failed to prove the ends justified the means.
Of course, the CFPB strongly opposed this argument, telling HousingWire the Treasury’s report rehashes industry arguments that were analyzed in depth and solidly refuted in the final rule.
“Tonight’s vote is a giant setback for every consumer in this country,” CFPB Director Richard Cordray said after the vote. “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.”
“It preserves a two-tiered justice system where banks can have their day in court but deny their customers the same right,” Cordray said. “It robs consumers of their most effective legal tool against corporate wrongdoing. As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers. I urge President Trump to stand with consumers and veto this resolution.”
All Democratic Senators stood with the CFPB, and voted against the repeal.
— Elizabeth Warren (@SenWarren) October 25, 2017
Other members of Congress joined in with Sen. Elizabeth Warren, D-Mass., in their opposition to the vote.
“The shameful move to repeal the forced arbitration rule will rob consumers who have been wronged by financial institutions of their right to join together and have their day in court, and allow financial institutions to get off the hook when they commit wrongdoing,” said Ranking Member of the House Committee on Financial Services Maxine Waters, D-Calif. “In voting to nullify the rule, Congressional Republicans have sided with companies like Equifax and Wells Fargo over the consumers they have harmed.”
And some experts agreed with the CFPB, saying Congress handed a gift to financial bad actors by allowing them to take advantage of consumers.
“Companies, like Wells Fargo and Equifax, frequently bury forced arbitration clauses in the fine print of agreements, giving them the ability to cheat consumers with impunity,” said Melissa Stegman, Center for Responsible Lending senior policy counsel. “These rip-off clauses deny Americans the freedom to seek justice through our court system – a right embodied by the Constitution's Seventh Amendment.”
“The clauses instead force consumers into an arbitration process rigged against them – secretive, without the right of appeal, and often with the arbitrator relying on the company for repeat business,” Stegman said. “Because companies can pick people off one-by-one in a process that is frequently time-consuming, expensive, and difficult for the individual, their systemic misconduct can continue for years.”
And other experts agreed, saying these bad actors now hold a get out of jail free card.
“Today, Senate Republicans voted to give companies like Wells Fargo and Equifax a get out of jail free card,” Allied Progress Executive Director Karl Frisch said. “This repeal will hurt millions of consumers across the country by denying them their rightful day in court when they get screwed over by financial predators.”
“It’s clear why Senate Republicans passed this bill, because they care more about the big banks and financial institutions that have funded their campaigns than protecting consumers,” Frisch said.
However, the Office of the Comptroller of the Currency, which previously stated that while it wouldn’t stand in the way of the rule, it welcomed Congressional repeal, held an altogether different view of the vote.
“Today, the U.S. Senate joined the House of Representatives in voting to overturn the CFPB’s arbitration rule,” said Keith Noreika, acting comproller of the currency. “The elected representatives acted to stop a rule from going into effect that would have likely increased the cost of credit for hardworking Americans and made it more difficult for small community banks to resolve differences with their customers without achieving the rule’s goal of deterring future financial abuse. The action by Congress is a victory for consumers and small banks across the country.”
“Too often in Washington, decisions are made in the interest of the powerful and the well-connected, without considering the practical economic impact on working people,” Noreika said. “It is a credit to the economists and other staff at the OCC who, upon reviewing the data and analysis used by the CFPB, identified the rule’s likely significant effect on consumers. By bringing the previously undisclosed data to light, staff ensured a more informed and more transparent discussion of the rule.”
And one expert who represents financial institution clients in cases related to consumer and securities class action matters explained this victory for Republicans could lead them to look once more at repealing the Dodd-Frank Act.
“Last June, the House approved a bill introduced by Rep. Jeb Hensarling to repeal portions of the Dodd-Frank Act and restructure the CFPB,” Buckley Sandler Partner Fredrick Levin said. “This bill is pending in the Senate.”
“Repeal of the arbitration rule may argue that Senate Republicans have the will and the bare minimum votes to enact a broader repeal of the Dodd-Frank Act,” Levin said. “Alternatively, repeal may dampen the sense of urgency regarding Dodd-Frank and CFPB reform.”
And other experts say this vote will protect consumers, allowing them to resolve their disputes in a timely manner.
“Today the Senate acted to preserve consumer access to low-cost arbitration and enable Americans to resolve disputes in a timely manner,” said Anthony Cimino, Financial Services Roundtable head of government affairs. “We applaud Congress for exercising its oversight authority on this important consumer protection issue.”
Others say Congress prevented what would have turned into a cash-grab for wealthy attorneys.
“By voting down the Consumer Financial Protection Bureau’s anti-arbitration rule, the Senate today prevented a cash grab that would have transferred wealth from consumers to the pockets of wealthy attorneys,” said Ted Frank, Competitive Enterprise Institute’s Center for Class Action Fairness director.
“CEI's attorneys have won over $100 million for class members fighting against class-action abuse, but far too few courts provide the protection for consumers that the law requires,” Frank said. “Because of this, it is important for consumers to have the choice that the Senate helped protect today.”