Thu, Oct 26, 2017 - Page 7 News List

Republicans, Wall Street score victory on lawsuits

Reuters, WASHINGTON

Banks, credit card issuers and other financial companies would be able to block customers from banding together to sue over disputes, after the US Senate on Tuesday narrowly killed a rule banning the firms from using “forced arbitration” clauses.

US Vice President Mike Pence appeared on the Senate floor at 10:11pm to cast the tiebreaking vote as the chamber’s president and approve the most significant rollback of former US president Barack Obama’s financial policy since US President Donald Trump took office vowing to loosen the leash on Wall Street.

The final count was 51 to 50.

The Republican-dominated US House of Representatives has already passed the resolution repealing the US Consumer Financial Protection Bureau (CFPB) rule released in July.

The resolution also bars regulators from instituting a similar ban in the future.

After a signature from Trump, expected soon, the resolution would abruptly end a years-long fight that has included multiple federal regulators, consumer advocacy groups and financial lobbyists.

CFPB Director Richard Cordray, a US Democrat appointed by Obama, rarely comments on congressional action, but on Tuesday night said that “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,” he added.

Customers must agree to the clauses as a condition to open accounts, saying they will take any disputes to closed-door arbitration instead of joining class-action lawsuits, where complainants band together to share litigation costs.

The clauses are used for nearly every US consumer product and service since the US Supreme Court ruled them legal in 2011.

Victims of the Equifax hack were outraged last month when the company included forced arbitration fine print in offering them free credit monitoring. The company later removed the clauses.

At the same time, Wells Fargo customers whose identities were used in last year’s phony accounts scandal have had difficulty suing the bank, because they are bound by arbitration clauses in contracts they signed for legitimate accounts.

The CFPB rule, set to go into effect next spring, was not retroactive and would not have helped Equifax or Wells Fargo customers.

Members of Trump’s administration have relentlessly assailed the rule, and on Monday the US Department of the Treasury laid out arguments against it in a special report.

Acting Comptroller of the Currency Keith Norieka on Tuesday said the Senate’s action stopped a rule “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.”

Critics of the rule had said class-action lawsuits only benefit trial lawyers and arbitration generally wins larger settlement awards for customers.

Supporters said forced arbitration harms customers by putting companies in control of the process and taking away the right to sue enshrined in the constitution.

The CFPB created its rule after conducting a five-year study that found customers struggle to have banks open arbitration cases about their complaints, but that those few cases have led to slightly higher individual awards than class-action lawsuits.

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