President Donald Trump signed a resolution on Wednesday to officially revoke the Consumer Financial Protection Bureau’s highly contested arbitration rule.
Ever since the bureau unveiled the rule in July, it’s been an uphill climb for the CFPB and Democrats to stop Republicans from overturning it.
The main intention of the rule was to ban companies from using mandatory arbitration clauses and allow consumers to participate in class action lawsuits.
The now overturned rule mainly impacted consumer financial products like credit cards and bank accounts that have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing.
However, the rule was not applicable to mortgage finance since Congress already prohibits arbitration agreements in the residential mortgage market.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, one of the strongest opponents against the bureau’s rule, said on the news, “Overturning the CFPB’s harmful regulation is a decisive victory for consumers and our economy.”
“For far too long, the burden of Washington’s top-down regulations became so severe and so excessive they slowed our economy down and robbed Main Street Americans of opportunities to get ahead,” said Hensarling. “Thankfully, we now have a Congress and a President who understand that more complicated and excessive regulations are the last thing our economy needs, and that no one unelected and unaccountable government bureaucrat should have so much power to unilaterally impose such sweeping policy on the economy.”
Just last week, Vice President Mike Pence cast the tie-breaking vote to kill the arbitration rule, meaning all that was left to do was get Trump to sign it. The House already voted to revoke the rule at the end of July, using the Congressional Review Act, which allows Congress to overturn certain regulatory rules issued by federal agencies by within 60 days of the rules being announced.
But before Trump signed the resolution to forever kill the rule, CFPB Director Richard Cordray made one final plea to try and save it.
Cordray made the unusual choice to plead directly with the president to ask him to veto the Senate vote.
“Many have told me I am wasting my time writing this letter – that your mind is made up and that your advisors have already made their intentions clear,” Cordray stated. “But this rule is all about protecting people who simply want to be able to take action together to right the wrongs done to them. When people are wronged or cheated, they deserve the chance to pursue their legal rights.”
To no surprise though, Trump ignored Cordray’s request and signed the resolution.
Similar to when the rule was first announced, the news was met with mixed reactions of support and disappointment.
Acting Comptroller of the Currency Keith Noreika stuck by his original stance against the rule, saying, “Today, President Trump protected consumers and small and midsize banks by repealing a rule that would have cost millions, paved a path to expensive frivolous lawsuits, and lined the pockets of trial lawyers.”
“The action is a victory for consumers and small and midsize banks across the country because it stops a rule that likely would have significantly increased the cost of credit for hardworking Americans and taken away a valuable tool for resolving differences among banks and their customers,” said Noreika.
Industry trade groups were also split in their feelings toward the news.
“Consumers can thank the President and Congress for stopping a regulation that would have driven up the cost of getting credit. Using impartial, third-party arbitration as a cost-effective form of dispute resolution keeps access to credit open and affordable,” said Iain Murray, Competitive Enterprise Institute financial policy expert. “The next step for Congress is to disapprove the CFPB’s even more egregious rule against small dollar loans, which will kill access to needed credit for millions of less well-off Americans.”
On the other side, Center for Responsible Lending Senior Policy Counsel Melissa Stegman said, “President Trump just handed a get-out-of-jail-free card to financial fraudsters.”
“This unjust law enables companies to block group lawsuits by consumers, thus removing an indispensable check on corporate misconduct. Instead, this law lets companies force consumers into a secret arbitration system rigged against them – discouraging claims and allowing companies like Wells Fargo and Equifax to hide widespread consumer abuse,” said Stegman. “Despite this setback, CRL will continue to fight for the right of consumers to have their day in court.”