Senate overturns new rule allowing class-action suits against banks

A street sign for Wall Street is seen outside the New York Stock Exchange in Manhattan New York City

Senate overturns new rule allowing class-action suits against banks

The Treasury Department on Monday issued a report critical of a pending federal rule that would limit the use of forced arbitration by financial firms, calling it flawed and a giveaway to class-action attorneys. Even then, however, the vote was close. Lindsey Graham, R-S.C., and John Kennedy, R-La., voting against repeal.

For a moment, it appeared the outcome would be in doubt. Sen. The Senate could vote on S.J. Res. 47 as soon as tonight. Once she voted in favor of repeal, Pence stepped in to break the tie, approving the repeal measure 51 to 50.

In a letter to Treasury Secretary Steven Mnuchin earlier Tuesday, Cordray said the critical analysis "underestimates the benefits from class-action settlements, underestimates the deterrence effect of class actions, overstates the cost of class actions and misstates the impact of the Arbitration Rule on individual arbitration".

The report is the latest salvo in an ongoing fight over the rule, opposed by the finance industry and many Republicans in Congress.

"Banks, credit unions, and other companies file class-action lawsuits to pursue justice when they are harmed as a group, and our rule restores consumers' right to do the same", CFPB said.

"There is no reason for us to enrich a class of lawyers who ... bring these lawsuits and see consumers getting pennies on the dollar, which is what the status quo would permit", said Sen.

The CFPB "has been branded as a "rogue" regulator by Republicans and stands out as one of the few watchdogs still led by an Obama appointee, Richard Cordray".

"The CFPB's own study said the clear majority of arbitration clauses. specifically recognize and allow access to small claims court as an alternative to arbitration", he said.

The rule also has been criticized by Treasury official Keith Noreika, acting comptroller of the currency, who this summer asked the CFPB to delay implementing the new rule over concerns that it would threaten the health of the nation's biggest banks.

"Who's going to pay $200 upfront to try to get back a $30 fee back?" Elizabeth Warren, D-Mass., during a Senate floor speech before the vote. "Forced arbitration takes power away from ordinary people, and gives it to big banks and Wall Street companies that already have an unfair advantage".

Equifax, a business that kept consumer credit information on millions of Americans and shared it with lenders when someone wanted a loan or credit account, also had an arbitration clause.

During her speech, Warren pointed to the Wells scandal where employees were creating millions of fake accounts for customers in order to meet sales goals. The petition bolsters recent survey findings from both progressive and conservative pollsters - as well as polls in Alaska, Arizona, Louisiana, Maine and OH - showing strong bipartisan support for protections from forced arbitration. Without it, the millions affected by the historic security breach may be disallowed from related joining class action lawsuits.

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