Vice President Pence cast a tie-breaking vote late Tuesday to block new regulations allowing U.S. consumers to sue their banks, handing Wall Street and other big financial institutions their biggest victory since President Trump's election.
The rules would have cost the industry billions of dollars, according to some estimates. With the Senate's vote, Wall Street is beginning to reap the benefits of the Trump administration focus on rolling back regulations it says are strangling the economy. The vote is also a major rebuke of the Consumer Financial Protection Bureau, which wrote the rules, and has often found itself at odds of Republicans in Congress and the business community.
At issue is the fine print in many of the agreements that consumers sign when they apply for credit cards or bank accounts. These agreements typically require them to settle any disputes they have with the company through arbitration, in which a third party rules on the matter, rather than going to court or joining a class-action lawsuit.
The CFPB rule would block mandatory arbitration clauses in some cases, potentially allowing millions of Americans to file or join a lawsuit to press their complaints.
After more than four hours of debate, the Senate voted 51 to 50 to block its implementation. Pence was forced to cast the deciding vote shortly after 10 p.m. when two Republicans, Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana, opposed the resolution. House Republicans already passed legislation to block the rule, which now needs the approval of President Trump.
“Tonight’s vote is a giant setback for every consumer in this country. Wall Street won and ordinary people lost," CFPB Director Richard Cordray said in a statement minutes after the vote. The legislation "preserves a two-tiered justice system where banks can have their day in court but deny their customers the same right."
The measure was widely loathed on Wall Street and among Republicans in Congress, who called it a gift to plaintiffs' attorneys. Critics argued the rule would trigger a flood of frivolous lawsuits and drive up credit card rates. The U.S. Chamber of Commerce and several other business groups filed suit last month to block its implementation.
"Today's vote puts consumers first rather than class-action lawyers," said Rob Nichols, president of the American Bankers Association. The Credit Union National Association said the rule "was just the latest example of the one-size-fits-all rulemaking coming from the CFPB and thankfully Congress acted to remedy the situation.”
Proponents of the measure have dismissed such complaints. Class action lawsuits are a public way to force companies to change questionable business practices that would otherwise receive little attention. They also allow large groups of people to seek small amounts of money they individually wouldn't have the time or money to pursue, supporters of the rule say.
To gain support for the legislation, Republicans in the Senate had to overcome a populist campaign led by Democrats and consumer groups linking the rule to the backlash against two big -- and unpopular -- financial firms, Wells Fargo and Equifax. Wells Fargo has been under pressure since admitting last year that employees had opened millions of sham accounts customers didn't ask for, and Equifax is struggling to recover from a massive hack that affected more than 145 million people. Consumer groups have used both cases as a rallying cry against arbitration clauses, which Wells Fargo and Equifax both use.
"Companies like Equifax and Wells Fargo have hurt millions of consumers and tried to escape accountability using forced arbitration clauses," Sen. Elizabeth Warren (D-Mass.), a long-time critic of Wall Street, said on the Senate floor.
The Treasury Department took the unusual step on Monday of criticizing the work of another government agency, issuing an 18-page report that said the CFPB's arbitration rule “would upend a century of federal policy favoring freedom of contract to provide for low-cost dispute resolution.” Another banking regulator, Office of the Comptroller of the Currency led by Keith Noreika, has also criticized the rule. The OCC and Treasury Department are both led by Trump nominees.
The friction reflects a lingering division between the CFPB and the White House. Under the Trump administration, many agencies have begun taking steps to roll back regulations, which the White House has said strangles economic growth. But the CFPB, a watchdog agency established after the global financial crisis and still led by an Obama-era appointee, has continued to draw the ire of business groups with its aggressive tactics.
“Today’s vote was an important step in asserting Congressional oversight of an agency that has routinely demonstrated a lack of accountability,” Sen. Mike Crapo (R-Idaho), who sponsored the legislation, said in a statement.
Earlier this month, the agency finalized wide-ranging rules targeting the billions of dollars in fees collected by payday lenders offering high-cost, short-term loans immediately drawing industry protests. The Senate vote may indicate that the payday rule and other measures being contemplated to rein in debt collectors will face similar Republican resistance in Congress, industry analysts said. "The seemingly revitalized GOP/Trump administration commitment to deregulation," Charles Gabriel of Washington-based research firm Capital Alpha Partners said in a research note.