The arbitration clause rule has been formally smacked down by the U.S. Senate — after the 50-50 tie vote was broken by VP Mike Pence.
Yes, the same Congress that has been unable to authorize health care for poor children for a month — or pass any meaningful legislation whatsoever in the last year — has proved it can actually do something.
Something controversial, yes — but at least Congress managed to successfully pass something.
That vote officially strikes down the arbitration rule the Consumer Financial Protection Bureau (CFPB) released over the summer. The rule, as written, would have banned financial services firms from inserting arbitration clauses into their service contracts. Those arbitration clauses, according to consumer advocates, bring two distinct harms to consumers. The first is that arbitration proceedings can only involved individuals — meaning their use essentially kills class actions lawsuits. The second harm is that, according to some analysis, arbitrators rule overwhelmingly in favor of corporations.
Class actions are a tool by which consumers, en masse, pursue complaints against companies in cases where individual suits would not be practical because they aren’t worth enough funds for a lawyer to take on. The new rule allowed FIs to continue imposing arbitration demands but banned them from keeping consumers away from class actions suits. Had the rule survived, it would have gone into effect in March.
The House almost immediately voted to repeal the measure the same month it was originally issued. Republican Senators Lindsey Graham of South Carolina and John Kennedy of Louisiana broke with the Republicans to vote against the measure — which lead to the 50-50 tie that VP Pence had to break.
The repeal, which now prevents the issue from returning to legislative consideration for the next five years, will be marked as a win for the financial services industry, which claimed the rule was unfair to them and imposed too many costs. It seemed as though the new rule might survive the Congressional Review Act (CRA — the rule used to repeal the CFPB’s rule). Under the CRA, Congress had 60 days from the law’s passage to pass a repeal. The measure will now go to the President’s desk, and he is widely expected to sign it.
“Tonight’s vote is a giant setback for every consumer in this country,” Richard Cordray, the director of the consumer bureau, said in a statement. “As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.”