Congress overturns consumer bureau rule limiting mandatory arbitration in bank contracts
Consumer Financial Protection Bureau logo.
Vice President Mike Pence cast a tie-breaker vote in the Senate on Tuesday to overturn a rule to limit mandatory arbitration clauses in contracts between consumers and financial institutions.
The overturned Consumer Financial Protection Bureau rule (PDF) would have barred mandatory arbitration clauses that prohibit consumers from bringing class action lawsuits. The regulation had been set to take effect in 2019.
Congress was able to overturn the regulation under the Congressional Review Act, which gives Congress 60 legislative days to overturn a rule.
The Treasury Department warned (PDF) in a report on Monday that the CFPB rule would generate an additional 3,000 class action lawsuits over the next five years, requiring businesses to spend an additional $500 million in legal defense fees. Most consumers covered by the class actions will get “zero relief,” but there will be “a large wealth transfer to plaintiffs’ attorneys,” the report said.
Sen. Elizabeth Warren, D-Mass., had criticized the bill to overturn the rule as “a giant wet kiss to Wall Street.”
ABAJournal.com: “CFPB seeks to ban mandatory arbitration of consumer disputes over banking, credit cards and loans”