The Senate could vote as early as today on legislation that would make it a lot harder for consumers to bring class-action lawsuits against financial companies. The vote would essentially void a rule issued by the Consumer Financial Protection Bureau in July that prevents companies from including a ban on class-action lawsuits in their consumer contracts, requiring instead individual arbitration to resolve consumer disputes with financial companies.
The House has already passed its own bill to thwart the CFPB rule, and now the Senate is set to do the same, possibly as early as today, according to Michael Best, director of advocacy research at the Consumer Federation of America. ThinkAdvisor contacted the Senate leadership office about the expected timing of a vote but hadn’t heard back by press time.
Only a simple majority vote by the Senate is required to pass the legislation, known as S. J. Res. 47, a joint resolution by the House and Senate to nullify the CFPB rule regulating the use of arbitration agreements. Under the Congressional Review Act passed in 1996, Congress or the president can reverse agency rules by a majority vote not subject to a filibuster.
Senate Republicans are supported in their effort to overturn the CFPB rule by a Treasury report released Monday that predicts it will lead to 3,000 additional class-action suits over the next five years, costing financial services firms hundreds of millions of dollars in legal defense fees.
Also opposing the CFPB rule are a coalition of trade groups representing the financial industry, including the American Bankers Association, American Financial Services Association and U.S. Chamber of Commerce, that sued the CFPB in September and the Office of the Comptroller of the Currency that has released an analysis that found the rule would increase the cost of credit for consumers.
Consumer advocates take the opposite point of view. They want the rule to stand as is. “The rule has restored consumer access to an important accountability tool—joining together in legal actions,” said the CFA’s Best in a statement. “Forcing individuals to hold large corporations accountable, one by one through arbitration, is not a reasonable alternative.”
A five-year study conducted by the CFPB before it formulated its rule found that consumers who file class-action suits receive far greater payouts to resolve complaints than those who go the arbitration route. An average $220 million was paid to 6.8 million consumers per year as a result of group lawsuits compared with less than $100,000 distributed to just 16 people per year on average as a result of arbitration, according to New York Times op-ed written by CFPB director Richard Cordray.
“Not only do group lawsuits help consumers recover money they otherwise would forfeit, but they also protect many more consumers by halting and deterring harmful behavior,” Cordray wrote, noting that the CFPB rule doesn’t ban individual arbitration but ensures that consumers have the option of joining class-action lawsuits.
“As we continue to find out how much damage Equifax and Wells Fargo have inflicted on American consumers, the last thing Congress should be doing is reducing customers’ rights to hold financial companies accountable,” wrote Sen. Elizabeth Warren, D-Mass., who helped create the CFPB, in a recent Boston Globe op-ed.
— Related on ThinkAdvisor:
- Forced Arbitration Clauses Harm Consumers: CFPB
- Wells Fargo Reps: Data Leak Is the ‘Last Straw’
- Trump’s Justice Department Says CFPB Should Not Be Independent