Republicans move to repeal financial rule opposed by banks
WASHINGTON – Targeting government regulations, the Republican-led House on Tuesday voted to nullify a rule that would let consumers join together to sue their banks or credit card companies rather than use an arbitrator to resolve a dispute.
The repeal resolution passed by a vote of 231-190.
The Consumer Financial Protection Bureau finalized the rule just two weeks ago. It bans most type of mandatory arbitration clauses, which are often found in the fine print of contracts governing the terms of millions of credit card and checking accounts.
Republican lawmakers, cheered on by the banking sector and other leading business groups, wasted no time seeking to undo the rule before it goes into effect next year. They’ll succeed if they can get a simple majority of both chambers of Congress to approve the legislation and President Donald Trump to sign it.
The numbers are likely on their side, just as they were earlier this year when Republicans led efforts to upend 14 Obama-era rules.
GOP lawmakers described the rule as a bad deal for consumers but a big win for trial lawyers. They said the average payout for participants in a class-action lawsuit was just $32 in the financial disputes the consumer bureau studied.
“How is that pro-consumer?” asked Rep. Keith Rothfus, R-Pa., the resolution’s sponsor.
Meanwhile, Rothfus said the average payout for the attorneys in the class-action cases amounted to nearly $1 million.
Democratic lawmakers fought to keep the rule. They said they’re not opposed to arbitration. It just shouldn’t be the only option consumers have. They said the point of participating in a class-action lawsuit is generally to pursue relief from small financial injuries – the kind that would not be worth the time and expense for someone to take to an arbitrator. Sen. Elizabeth Warren, D-Mass., said that when a whole lot of people get hurt in the same way, they should have a chance to join together to seek redress.
“If you’re going to cheat people, there’s going to be some accountability,” Warren said during a news conference with Democratic leaders in the House. “That’s what this provision is all about.”
Democratic lawmakers framed the debate as Republicans sticking up for powerful financial companies at the expense of consumers who often are outgunned and outmanned in their disputes with banks and other creditors. Minority Leader Nancy Pelosi, D-Calif., said during the debate that across the Capitol, Republican lawmakers were voting to begin debate on health care legislation that she said would shatter the health care of millions of Americans without regard for the consequences.
“Every chance they get, they stack the deck against America’s working families,” Pelosi said of the Republican lawmakers.
Republicans described arbitration as a superior option for consumers and said that the Consumer Financial Protection Bureau’s action could force banks to hold greater reserves to prepare for future litigation. That money would be better spent being lent to small businesses and families, they said.
They also described the rule as a gift for trial lawyers rather than consumers. To show that arbitration works, they highlighted how the average payout in the arbitration cases the bureau studied was about $5,300.
The consumer protection bureau found that consumers tended to seek relief through arbitration when they believed they were out thousands of dollars. The agency found only a couple dozen cases a year when consumers filed arbitration claims against financial services companies to pursue an amount of $1,000 or less.
The consumer protection agency also estimated that the cost of complying with the new rule would be less than $500 million annually for banks. Meanwhile, the agency also said that banks generated more than $171 billion in profits in 2016.