The U.S. Senate voted this week to kill a rule that would allow consumers to file class-action lawsuits against banks.
Vice President Mike Pence broke a 50-50 tie to roll back the Consumer Financial Protection Bureau’s (CFPB) proposal to eliminate the arbitration clause, which would have allowed consumers to file class-action suits against banks and credit card companies.
The CFPB found that forced arbitration clauses that prohibit consumers from entering class-action lawsuits against companies are commonplace in financial product contracts. Most arbitration clauses require people to bring claims individually against the company, outside the court system, before a private individual (an arbitrator).
The CFPB said this makes it more difficult for consumers to hold banks accountable for misconduct.
Sens. Lindsey Graham (R-SC) and John Kennedy (R-LA) were the only two Republicans to vote against the CFPB proposal.
Consumer Bankers Association (CBA) applauded the vote to defeat the bill.
“The Senate acted to protect consumers with this vote. 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,” CBA President and CEO Richard Hunt said. “The CFPB’s own study even verifies arbitration is more effective when it comes to helping consumers.”
Those opposed to the rule said consumers who go through arbitration gain more favorable outcomes than those who file class-action lawsuits. Citing the CFPB’s own study, Hunt said the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class–action suit. Trial lawyers, however, have received approximately $424 million through the management of class-action cases.
The House overturned the CFPB’s rule in July. It now awaits the president’s signature.
“This rule was ill-conceived, based on an incomplete study and did not fulfill the Bureau’s goal of protecting consumers,” Hunt said.