A new federal regulation that would make it easier for Americans to bring class-action lawsuits against banks and other financial institutions might be scrapped before it ever takes effect.
Republican lawmakers had vowed to kill the rule, released by the Consumer Financial Protection Bureau just two weeks ago, and took the first step toward doing so Tuesday with a vote in the House of Representatives.
The GOP-led House voted 231 to 190, almost entirely along party lines, to undo the rule by invoking the Congressional Review Act, which allows Congress to repeal newly enacted federal rules. The House resolution now goes to the Senate and, if approved there, to President Trump.
Only one Republican, Rep. Walter Jones of North Carolina, voted against killing the rule, and no Democrats voted in favor — a sign of the deep partisan divide over financial regulation in general and the powers of the CFPB in particular.
The bureau, created by the Dodd-Frank Wall Street Reform Act in the wake of the financial crisis, is deeply unpopular with many Republicans, who deride it as an overreaching and unaccountable agency. Democrats largely support the bureau and its embattled director, Richard Cordray, calling it an effective enforcer of rules aimed at protecting consumers.
The new rule would ban a common feature of contracts that consumers sign when they open bank accounts or use other financial products and services. Those contracts often include an arbitration clause — an agreement that customers will settle issues with the institution in private arbitration rather than in court.
The CFPB rule would allow banks to continue to force customers into arbitration, with one big exception: Customers would be able to bring and join class-action cases.
Such suits, Cordray said when introducing the rule this month, allow consumers who have suffered relatively minor harms to join together to hold a big bank accountable and to bring bad practices to light. Those customers might not see the point in going through the arbitration process on their own.
Wells Fargo successfully used its arbitration clause to stymie consumer lawsuits over its creation of unauthorized accounts, though it ultimately reached a $142-million deal to settle several class-action suits after its practices created a scandal. Consumer advocates argued that if earlier suits had been able to proceed, the bank’s practices might have been uncovered sooner.
Critics of the rule, though, argue that it will lead to frivolous lawsuits against banks. The acting head of the Office of the Comptroller of the Currency, a key banking regulator appointed by Trump, has even suggested that the rule could pose a risk to the nation’s banking system by exposing financial institutions to additional litigation costs.
Rep. Jeb Hensarling (R-Texas), a vocal CFPB critic and chairman of the House Financial Services Committee, said the rule would hurt consumers and is “another example of the problems caused by this rogue and unaccountable agency.”
In prepared remarks Tuesday, Rep. Maxine Waters (D-Los Angeles), the ranking Democrat on the financial services committee, called the move to spike the rule “part of a pattern from congressional Republicans of irrational hostility toward the [CFPB] and its work and a callous disregard for the issues facing America’s consumers.”
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