Vice President Mike Pence broke a tie in the Senate Tuesday night to strike down the Consumer Financial Protection Bureau’s arbitration rule, which would have allowed consumers to more freely file class-action lawsuits against financial institutions.
The vote is widely being regarded as one of the first major wins for the financial services industry under the new administration. President Donald Trump is expected to sign the repeal legislation.
Effectively, this repeal keeps the status quo that this industry has been operating under for years. It doesn’t mean lenders can take the foot off the compliance pedal, David Gemperle, partner at Nisen & Elliott LLC, told Auto Finance News.
“Arbitration will prevent major liability over small transactions,” he said. “It doesn’t change what you should be doing compliance-wise, but there is more security if you have an arbitration provision. You nevertheless could have an error at some point that could present liability that has very little cost to consumers, but case-wide — if the claim is correct — you have potential liability.”
Had it been enacted, the CFPB’s rule would have banned forced arbitration clauses, allowing consumers to band together to file suit against lenders. The bureau claims that the arbitration clauses help to keep the bad actions of banks in the dark, whereas the industry argued that the flood of new class actions under the CFPB’s rule would be costly to companies and that those costs would get passed onto consumers.
For example, consumer advocates point to Wells Fargo & Co.’s fake checking accounts scandal as a case where a bank was able to prevent consumers from coming out in public court to sound the alarm earlier. That investigation by the CFPB eventually led to the revelation that Wells Fargo Dealer Services was charging auto borrowers for insurance they didn’t need.
“The Senate acted to protect consumers with this vote,” Richard Hunt, president and chief executive of the Consumer Bankers Association, said in a press release shortly after the repeal vote. “Overturning the CFPB’s arbitration rule ensures consumers retain the tools they need to receive relief without going through long, drawn-out, costly court proceedings — where no one benefits except trial lawyers.”
This week, The Treasury Department also took aim at the CFPB’s rule claiming in an 18-page report that the bureau didn’t adequately assess the harm it could cause consumers.
Democrats renewed their support for the CFPB rule to no avail on Monday with Sen. Chuck Schumer of New York saying, “With this report, the Trump administration has twisted itself into a pretzel to try to undermine a rule that protects consumers from unscrupulous actors like Equifax and Wells Fargo.”
On Thursday, Calvin Hagins, deputy assistant director for originations in the office of supervision policy at the CFPB, is taking part in a regulators’ roundtable at the Auto Finance Summit at the Wynn Las Vegas. To learn more about this year’s event — or to register — visit the Summit’s homepage here.Like This Post