THE TICKER

Big banks are about to find out how far Senate Republicans will go to get them out of a jam. 

The Consumer Financial Protection Bureau dropped a hammer blow on the industry Monday by adopting a rule that will allow consumers to bring class-action suits against financial firms. The move prohibits banks from tucking mandatory arbitration clauses into contracts for credit cards, bank accounts and other financial products. For years, those binding agreements forced customers to waive their right to sue in the event of a dispute. 

The CFPB has been working on the rule effectively since its inception — the 2010 Dodd-Frank law that created the bureau also gave it explicit authority to ban the practice. But industry lobbyists and activists alike agreed Monday that the rule’s finalization amounts to the CFPB’s most significant action in its five-year history. 

The outline of an industry-backed plan to roll the rule back is already taking shape. Working through their Washington trade associations, banking interests plan to lean on congressional Republicans to scrub the rule from the books. 

GOP lawmakers can do that with simple majority votes in both chambers by using the Congressional Review Act, a little-used 1996 law that Republicans employed to erase 14 Obama-era rules earlier this year. House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) in a Monday statement signaled House Republicans will move to do just that: “As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” he said. 

The law allows Republicans to nullify new federal regulations with simple majorities in each chamber, meaning Senate Republicans could do so without having to meet the typical 60-vote threshold for action. Lawmakers must act within 60 legislative days of the rule's publication in the federal register, a clock that should start ticking within the next couple of weeks.

Republicans in the lower chamber should have little trouble approving a resolution to do away with the rule. The real test will come in the Senate. In May, Senate Republicans failed to muster enough support to scotch a CFPB rule regulating prepaid debit cards.

Richard Hunt, president and CEO of the Consumer Bankers Association, described that fight to the American Banker as “single-A baseball,” while the pending battle over arbitration will be the major leagues. One industry lobbyist framed the stakes simply: “Do Republicans want to take a party-line vote on this? It depends on whether it can be spun as small bank relief.”

Amanda Werner, who is leading a campaign by Americans for Financial Reform and Public Citizen to uphold the rule, said the CFPB’s allies have an uphill fight ahead. “Republicans who try to roll this back will hear about it in 2018,” she said. “We think we can win. It’s not going to be easy.”

Her side needs to find three Senate Republicans who will back the rule. The May fight over the prepaid accounts provides a playbook: Advocacy groups ran ads targeting Sens. Susan Collins (Maine), Dean Heller (Nev.), and Lisa Murkowski (Alaska) — and had a shortlist of other GOPers they believed would oppose repeal. Republican leaders knew the measure lacked the votes it needed and never brought it to the floor. (In a Monday note to clients, Compass Point's Isaac Boltansky pointed to other factors, including a fractured industry strategy and a delayed effective date that diminished the urgency of action.)
 

The U.S. Chamber of Commerce will likely take a leading role driving the industry’s pushback. 

David Hirschmann, president and CEO of the group’s Center for Capital Markets, said the chamber is exploring its legal and legislative options, including a Congressional Review Act challenge. “We’re not making any decisions today, but we know how important this is to opening our members up to the jackpot of class-action lawsuits,” he said, calling the rule a giveaway to the trial bar. 

The New York Times, which investigated the spread of arbitration, has this background

There is no federal database that tracks arbitrations, and the process is entirely secretive.

To get beyond the anecdotal, The New York Times assembled its own database of arbitrations in a series of articles in 2015 that showed that few people ever go to arbitration.

In financial disputes, the numbers are particularly startling. In its investigation, The Times found that from 2010 to 2014, only 505 consumers — a fraction of the tens of millions of Americans whose financial contracts have arbitration clauses — went to arbitration over disputes of $2,500 or less.

That reluctance is why one federal judge remarked in an opinion that “only a lunatic or a fanatic sues for $30.”

By banning class actions, companies essentially squashed challenges to practices such as predatory lending, wage theft, sexual discrimination and medical malpractice.

Among the class actions derailed over the years by arbitration was a case brought by Citigroup customers who accused the bank of tricking them into insurance that they were never eligible to use. In another, a group of merchants challenged American Express over high processing fees.

The Trump administration for the moment appears inclined to take a hands-off approach. Although speculation swirled that President Trump would sack Richard Cordray, the CFPB director, after taking office, he now looks disinclined to do so — in part because the move would likely bolster Cordray’s standing back in his native Ohio ahead of a potential bid for governor next year. The White House instead will let the Congressional Review Act process play out, meaning Senate Republicans hold the key to the industry’s fate on the matter. 
 

MARKET MOVERS

— The scandal of the Trump team's Russia ties turned a very dark corner last night, when the New York Times dropped this bombshell: Donald Trump Jr. was informed via email before his June 2016 meeting with a Kremlin-linked lawyer that she'd offer him dirt on Hillary Clinton "as part of a Russian government effort to aid his father's candidacy."

The email from publicist Rob Goldstone — the New York Times reported, citing three people with knowledge of the message — “indicates that the Russian government was the source of the potentially damaging information. It does not elaborate on the wider effort by Moscow to help the Trump campaign. There is no evidence to suggest that the promised damaging information was related to Russian government computer hacking that led to the release of thousands of Democratic National Committee emails.”

The revelation appears to mark the first time a member of Trump's inner circle knowingly sought help from the Russians, with the understanding that the foreign adversary also sought to lift the candidate to victory. The White House is denying President Trump had any knowledge of the meeting — prompting some commentators to note the denial should be taken with a boulder of salt, considering the Trump clan's closeness and the administration's self-made credibility problems: 

From The Post's Ruth Marcus:

— The White House is finally moving forward with its long-expected nomination of Randy Quarles to serve as the Federal Reserve's top regulator of the big banks. The nod marks Trump's first move to put his imprint on the central bank — by selecting a former Treasury official and investment fund manager whom the industry expects will offer a friendlier approach than Daniel Tarullo, the Fed's forrmer de facto chief regulator.

If confirmed, Quarles will become the Fed's first vice chair for supervision, a slot created by the Dodd-Frank Act but never filled. The Trump administration last month presented a detailed plan for rolling back regulations on Wall Street, and Quarles would immediately become the key figure in determining how quickly that vision is put into practice. Most industry-watchers believe he's an institutionalist who will steer a slow and careful course through the political thicket of deregulation. 

The Wall Street Journal has this quick guide to Quarles's own words on hot-button regulatory and monetary policy debates.

— Consumers are itchy to spend. The New York Fed's monthly survey of consumer expectations, out Monday, showed people expect to open their wallets more in the months ahead, and they feel increasingly secure about their job prospects in a stronger labor market. Reuters: "The results bolster the current Fed outlook of an economy that continues to generate jobs despite tepid overall growth and some concern about a recent dip in inflation, improving chances the central bank can follow through with plans for a further interest rate increase later this year."

 

And Trump put his personal weight (for now anyways) behind Los Angeles's bid to host the 2024 Olympics:

Investors will learn more about where the major financial institutions stand when the sector kicks off second-quarter earnings.
CNBC
POCKET CHANGE

Wells Fargo customers who had fake accounts created in their names are inching closer toward getting paid back. A federal judge gave preliminary approval over the weekend to a $142 million settlement agreement. Wells Fargo CEO Tim Sloan called ruling a "major milestone in our efforts to make things right for our customers."

Warren Buffett’s Berkshire Hathaway is relying less on stock picking for its future, as its latest energy bid signals.
WSJ
The hedge fund said it was working on a $9.3 billion takeover bid for Energy Future Holdings that would edge out a $9 billion offer by Berkshire Hathaway.
New York Times
The sharing economy has made it easier for communities to peer-exchange anything. But the model doesn't work for everything.
CNBC
MONEY ON THE HILL

The House Freedom Caucus is naming its terms for supporting a debt ceiling hike. The far-right wing of the House GOP wants either $250 billion in spending cuts, an Obamacare repeal, or to force the Treasury secretary to "issue GDP-linked bonds to pay the country’s debt in the event that the debt ceiling is reached, and allow the president to authorize the sale of certain government assets to raise funds for the payments," according to The Hill. 

Jane Sanders championed the costly relocation of Burlington College. Its closure in financial distress could spawn a criminal case that damages her husband politically. 
Shawn Boburg and Jack Gillum
The party is at a crossroads on the economy.
Max Ehrenfreund
THE REGULATORS

Three major clearinghouses survived their first coordinated global test of their ability to survive a big bank going belly-up. The firms, which add stability to the financial system by serving as intermediaries to the banks, were run through a scenario where a Lehman Brothers-style collapse followed from the market chaos set off by the Brexit vote last year, Bloomberg reports. 

CHART TOPPER

From the Post's Philip Bump: Why is Trump more worried about coal miners than department store employees?

TRUMP TRACKER

— Trump talked a lot during the campaign about slapping tariffs on foreign steel as a way to fight for American manufacturing workers. There’s been no sign of action yet, and it’s not clear there will be any, per the Associated Press. A report from Commerce Secretary Wilbur Ross on the matter has been sidetracked by a Pentagon review of the national security implications of imposing steel tariffs. 

— But here’s one way Trump is following through on a campaign vow this week: As a candidate, Trump was uniquely hostile to the tech industry, amid a field of Republican hopefuls anxious to associate themselves with Silicon Valley’s new-economy sheen. Now the Trump administration is announcing plans to rescind an tech-favored, Obama-era program that allowed foreign entrepreneurs who launched start-ups here to live in the country. The program, launched at the end of Obama’s presidency, was set to take effect July 17, but the administration announced Monday it would delay it until next March while the Homeland Security Department conducts an extra review of the so-called “start-up visa.”

The U.S. president says it can be done "very, very quickly." But economists say, not so fast.
Bloomberg
DAYBOOK

Today

  • The Federal Reserve Bank of New York and Columbia University’s School of International and Public Affairs’s conference on central banks.
  • The National Economists Club holds an event with Harvard professor and former IMF chief economist Kenneth Rogoff.

Coming Up

  • SEC chairman Jay Clayton will speak at the Economic Club of New York’s luncheon on Wednesday.
  • Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee on Wednesday.
  • Yellen will also testify before the Senate Banking Housing and Urban Affairs Committee on Thursday.
  • The Center for Strategic and International Studies will hold an event on US global food security strategy on Wednesday.
  • The Heritage Foundation is holding a event on Wednesday on the US debt.
  • The House Ways and Means Subcommittee on Tax Policy will hold a hearing on how tax reform will help small business growth on Thursday.
  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment will hold a hearing on the “Impact of the DOL Fiduciary Rule on Capital Markets” on Thursday.
THE FUNNIES

From The Post's Tom Toles: Donald Trump Jr. is mystified about  from where his sticky situation comes:

BULL SESSION

Watch as President Trump lends a hand to a Marine whose hat blew away in the wind:

Donald Trump Jr.'s Russia meeting contradicts White House's defenses:

The pop-star at the center of the latest Russia controversy: 

And Watch Stephen Colbert's take on Donald Trump Jr.'s meeting: