WASHINGTON – Continuing its focus on curbing government regulations, a Republican-led House is seeking to overturn a rule that would let consumers band together to sue their banks or credit card companies rather than use an arbitrator to resolve a dispute.
The Consumer Financial Protection Bureau (CFPB) 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 trade groups, have 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 in a class-action lawsuit was just $32 while the payout for the attorney in the case was nearly $1 million.
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“Arbitration is an alternative to the judicial system and it offers results and a better outcome for consumers,” said Rep. Ken Buck, Republican from Colorado. “Arbitration allows parties to use an independent mediator instead of hiring expensive lawyers to settle a dispute.”
Democratic lawmakers are fighting to keep the rule. 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 pursue on their own through the legal system. Sen. Elizabeth Warren, Democrat from Massachusetts, said that when a whole lot of people get hurt in the same way, they should have a chance to join together to pursue redress.
“If you’re going to cheat people, there’s going to be some accountability,” Warren said. “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.
“It sadly reflects a Republican Party that works relentlessly to empower Wall Street and to rig the system against consumers,” Democratic Leader Nancy Pelosi said of the repeal effort.
Republicans portrayed arbitration as a superior option for consumers and said that the CFPB’s action could force banks to hold greater reserves to prepare for future litigation. The money could instead be used to lend out to small businesses and families.
The consumer protection agency estimated that the cost of complying with the new rule would be less than $500 million annually for banks. The agency also said that banks generated more than $171 billion in profits in 2016.