GOP flexes power over consumer agency with arbitration repeal

Republicans scored their biggest victory yet against the Consumer Financial Protection Bureau (CFPB) late Tuesday, ending its push to regulate forced arbitration for years to come.

By nixing the arbitration measure through the Congressional Review Act (CRA), lawmakers effectively banned any federal agency from issuing a similar rule.

The GOP action sends a message to the CFPB that Republicans are willing and able to block its work, while Democrats and progressive groups wonder what the bureau’s future holds.{mosads}

“The effort to stop forced arbitration is dead, for all intents and purposes,” said Dennis Kelleher, president of Better Markets, a nonprofit backing stricter financial regulations.

The Senate voted to repeal the CFPB arbitration rule 51- 50 on Tuesday, with Vice President Pence casting the tie-breaking vote. GOP Sens. Lindsey Graham (S.C.) and John Kennedy (La.) broke from their party and voted against the repeal effort.

The CFPB rule would have barred banks and credit card companies from writing “forced arbitration” clauses into customer contracts. The contract language typically bars customers from joining class-action suits against companies, forcing them to resolve disputes through a third-party mediator. 

Republicans and business groups promised to kill the arbitration rule within hours of its release, and the House voted to repeal it less than a month later. Senate leaders struggled to secure enough support from their narrow majority to nix the CFPB rule until Tuesday night, when they sent the repeal bill to President Trump’s desk.

“This is a victory for consumers, a defeat for the wealthy trial lawyers lobby and a rejection of the unchecked, unconstitutional and unaccountable CFPB,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas). 

“Laws that Americans live under must be written by their elected representatives, not unelected and unaccountable bureaucrats.”

Banking and business groups praised lawmakers for delivering on their promise to repeal the rule, which they said was based on a flawed study and misguided agenda.

“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,” said Richard Hunt, president of the Consumer Bankers Association.

“This rule was ill-conceived, based on an incomplete study and did not fulfill the Bureau’s goal of protecting consumers.”

Thomas Donohue, president of the U.S. Chamber of Commerce, praised both houses of Congress for “taking action to pull back a rule that would have benefited the class action trial bar at the expense of American consumers and businesses alike.

“This move to rein in an overgrown and unaccountable CFPB is a welcome one, and we eagerly await the president’s signature on this bill.”

Democrats and progressive groups have long called for action on forced arbitration, and the CFPB rule was the most ambitious regulatory effort to do so. CFPB released the rule in July after two years of work, following years of studying forced arbitration settlements.

“Forced arbitration takes power away from ordinary people and gives it to big banks and Wall Street companies that already have an unfair advantage,” said Sen. Sherrod Brown (D-Ohio), the top Democrat on the Senate Banking Committee. 

“By voting to take rights away from customers, the Senate voted tonight to side with Wells Fargo lobbyists over the people we serve.” 

The rule’s repeal is one of the most significant and enduring victories for critics of the Dodd-Frank financial reform law. Action under the CRA bans federal agencies from issuing rules similar to those repealed, which means that other regulators could be barred from writing their own forced arbitration rules. 

CFPB could have potentially avoided a ban on arbitration regulations if it had waited to issue the rule until Republicans lost control of the House, Senate or White House. But CFPB Director Richard Cordray’s term ends in July, and it’s unlikely that his Trump-appointed successor would have pursued the arbitration rule. 

Cordray said in July he knew Congress could overturn the forced arbitration rules, but felt obligated to do what’s right for consumers. The bureau’s outside allies have also defended Cordray’s logic.

“The CFPB is focused on creating good sound policy. It would be an abdication of their responsibility not to tackle this issue,” said Karl Frisch, executive director of progressive nonprofit Allied Progress. “They shouldn’t have just waited for a better political environment.” 

Kelleher also backed Cordray’s decision to release the rule in July, saying it would have been a mistake for CFPB to wait. 

“The CFPB should do what is right,” regardless of whether “Wall Street’s political allies will use Congress to try to repeal it,” Kelleher said.