On Tuesday night while many Americans were busy watching the first game of the World Series, Vice President Mike Pence trekked to Capitol Hill to hand banks one of their biggest legislative wins in years.
Pence cast the tie-breaking vote to all but kill a Consumer Financial Protection Bureau rule that would have made it much easier for people to sue lenders over financial disputes.
For weeks, Senate Republicans had been scrambling to secure enough votes to pass the measure. Meanwhile, Sen. Elizabeth Warren of Massachusetts, Senate Minority Leader Chuck Schumer of New York and other Democrats had repeatedly argued that repealing the regulation would allow high-profile scandals at Equifax Inc. and Wells Fargo & Co. to go unpunished.
With Pence’s vote, the Trump administration sent a clear signal: It isn’t worried about looking like it’s doing the industry’s bidding, even after campaigning last year on a populist, anti-Wall Street message. It may be a political risk worth taking, some analysts said. The issues involved aren’t necessarily well-understood by the public, and President Donald Trump has made clear that he wants to cut back regulations that he blames for stifling economic growth.
“Most voters don’t care, this is one night and nobody was watching,” said Charles Gabriel, an analyst at Capital Alpha Partners in Washington. “No one in Trump America can disagree with a vote against an agency the president and Treasury say is rogue and a rule that they say is for trial lawyers. This issue has been litigated enough so Republicans can uniformly feel comfortable taking that vote.”
The CFPB regulation, which had been set to take effect next year, would’ve restricted use of mandatory arbitration clauses that are buried in the fine print of contracts that consumers sign when they get credit cards or open checking accounts. The language bars customers from joining class-action lawsuits by requiring them to settle disputes through arbitration.
The measure’s approval marks one of a few outright victories for banks in Congress since the 2008 financial crisis. Whether it builds momentum towards additional wins, or emboldens Democrats to be even more aggressive in fighting efforts to roll back rules, isn’t yet clear. The big changes the Trump administration and Republican lawmakers would like to make to the Dodd-Frank Act could be in the balance, because they will likely require Democratic support.
Tuesday’s Senate vote took place shortly after 10 p.m., and all but two Republicans voted to reverse the CFPB rule. Sens. Lindsay Graham of South Carolina and John Kennedy of Louisiana — both lawyers by profession — joined Democrats in opposing the change.
The House passed its version of the bill in July, shortly after the rule was released. The final step in the repeal effort is Trump signing the legislation. GOP lawmakers used the Congressional Review Act, which lets Congress overturn new rules and bar agencies from taking them up again.
Dodd-Frank mandated that the CFPB study the effects of arbitration in consumer contracts. After issuing a report, CFPB Director Richard Cordray began the process of crafting a rule restricting its use, something Republicans have protested since the start. Cordray, a Democrat who was appointed by former President Barack Obama, pushed the regulation through in July.
A central argument made by GOP lawmakers is that the CFPB’s study was flawed and that there’s little evidence showing arbitration hurts consumers.
The rule also has been at the center of a public clash between Cordray and the Trump administration. Acting Comptroller of the Currency Keith Noreika and other officials have challenged the data the CFPB used in creating the regulation. On Monday, the Treasury Department blasted the measure in a report, arguing that plaintiffs’ lawyers get almost all the money from lawsuits, while individual consumers get next to nothing.
Cordray and consumer advocates counter that the risk of paying out hundreds of millions of dollars in legal damages will incentivize banks to change their bad behavior.
To help make their case, consumer advocates had pointed to use of arbitration clauses by Equifax and Wells Fargo. Equifax’s reputation has been damaged by a data breach that resulted in the theft of personal data on nearly half the U.S. population, while Wells Fargo was fined by regulators for opening millions of accounts without customers’ approval.
After Tuesday’s Senate vote, Cordray said in a statement that “Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers.”
The battle over arbitration might not be over. Schumer has said the issue will be a key aspect of the Democratic Party’s platform in next year’s congressional elections.
“If the CFPB doesn’t have the ability to do what it is supposed to be doing — protecting the individual consumer — I think that’s a travesty,” Said Sen. Catherine Cortez Masto, a Nevada Democrat. “That’s why many of us will continue to fight.”