It would have allowed consumers to join together to sue their bank or credit card company to resolve financial disputes rather than sign up to the closed-door arbitration agreements included in the small print when they opened accounts.
The CFPB estimates that the rule would have cost the USA financial sector less than $1 billion per year. Late last night, the Senate was split on the issue 50 votes to 50 votes, which brought in Vice President Mike Pence. Research on arbitration shows that vanishingly few consumers come out on top; in one study of four years of arbitration in California, 94% of rulings favored the financial institution.
Only two Republicans-Lindsey Graham of SC and John Kennedy of Louisiana-voted to keep the rule in place.
Class-action lawsuits were necessary, Cordray and consumer advocates said, because numerous bank charges are too small for an individual customer or attorney to bother filing a lawsuit over, yet can multiply to millions of dollars in penalties for customers - and millions in profits for lenders. "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". That followed another agency, the Office of the Comptroller of the Currency, which also claimed that the rule would raise legal costs for banks.
"Arbitration will prevent major liability over small transactions", he said.
"This is a rule that benefits the plaintiffs' bar", said Sen.
Members of Trump's administration have relentlessly assailed the regulation, and Acting Comptroller of the Currency Keith Norieka said on Tuesday the Senate's action stopped a rule "that would have likely increased the cost of credit for hardworking Americans and made it more hard for small community banks to resolve differences with their customers".More news: High school golfer not awarded first-place trophy -- because she's a girl
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Cordray and consumer advocates counter that the risk of paying out hundreds of millions of dollars in legal damages will incentivize banks to change their bad behavior.
Democrats had hoped the recent scandals at Equifax and Wells Fargo would have led the Republican-controlled Senate to preserve the arbitration rule.
Proponents of mandatory arbitration have used that finding to argue arbitration is actually better for consumers.
Based on the Senate's action, financial institutions can put down their pens if they had begun excising mandatory arbitration provisions from agreements or pick up their pens if they had been refraining from adding such provisions in light of the proposed rule. Sherrod Brown, D-Ohio, on the Senate floor during debate. Forced arbitration nearly always works out in favor of corporations since they can avoid the legal costs of going to trial, and they routinely pay much less in settlement money than they would if the matter went to court. He should know: His employer, or at least its retail banking arm, has been suffering its own credibility crisis after it created millions of fake accounts to get more fees out of its customers. Besides forced arbitration isn't exactly an "option" when it's the only option. "It means that when big banks or payday lenders abuse thousands of people, we have the right to a hearing in a public setting by a neutral judge who must listen to the evidence on both sides, and make a decision consistent with the facts and the law that can hold up to review". You can go to court or if your bank offers it you can pursue arbitration.
Ian McKendry is the Congress reporter for American Banker.