The White House said Wednesday President Trump has signed legislation that overturns a federal rule which would have blocked the financial industry from banning class-action lawsuits.
The Consumer Financial Protection Bureau (CFPB) had adopted an Obama-era rule set to go into effect in 2018 which would have outlawed mandatory predispute arbitration clauses in customer contracts, allowing consumers to band together and sue banks and credit card companies.
Shortly after CFPB’s rule passed the mandatory review period in July, the House approved a bill to overturn it, followed by the Senate which passed the legislation to the White House on Tuesday, Oct. 24, after a 50–50 vote in which Vice President Pence cast the tie-breaking vote.
The bill’s enactment effectively means that Americans will be barred from suing their bank or credit issuers, and instead will have to go through a private arbitration process to settle claims.
In a letter on Monday, CFPB Director Richard Cordray appealed to the president not to sign the bill, citing recent scandals at Wells Fargo and Equifax, arguing that “(w)hen people are wronged or cheated, they deserve the chance to pursue their legal rights.”
“So who does forced arbitration help? Wall Street banks and other huge corporations that never pay the price for cheating working people,” said Sen. Sherrod Brown (D-Ohio).
Republicans and financial lobbyists maintain CFPB’s rule mainly benefited trial lawyers, as class-action suits only netted an average of $32 per consumer, with individual attorneys taking the lion’s share of the lawsuit or settlement money.
Democrats and consumer protection groups countered most people don’t have time to file individual claims and appear in front of an arbitration panel to argue their case, and mandatory arbitration provisions violate the First Amendment’s guarantee of an individual’s right to sue.
Editor’s note: This article has been updated.
[Reuters] [AP] [Photo courtesy WITF]