President Trump and Republicans in Congress handed Wall Street banks a big victory by effectively killing a popular rule that would have allowed consumers to band together to sue their banks.
The 51-50 vote in the Senate, with VP Pence casting the deciding vote, means bank customers will still be subject to what are known as mandatory arbitration clauses. These clauses are buried in the fine print of nearly every checking account, credit card, payday loan, auto loan or other financial services contract and require customers to use arbitration to resolve any dispute with his or her bank. These agreements effectively waive the customer’s right to sue in court.
The banking industry lobbied hard to roll back a proposed regulation from the Consumer Financial Protection Bureau that would have largely restricted mandatory arbitration clauses by 2019. Consumers would have been allowed to sue their bank as a group in a class-action lawsuit. Individual consumers with individual complaints would still have to use arbitration under the rules.
The overturn marks a significant victory for Wall Street. After the financial crisis, Congress and the Obama administration put substantial new regulations on how banks operated and fined them tens of billions of dollars for the damage they caused to the housing market.
“(The) vote is a giant setback for every consumer in this country. Wall Street won and ordinary people lost. This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company,” said CFPB Director Richard Cordray, who was appointed by President Barack Obama, in a statement.
If the CFPB’s rules had gone into effect, companies like Wells Fargo, JPMorgan Chase, Citigroup and Equifax could have been exposed to billions of dollars in lawsuits for their future poor behavior. The Center for Responsible Lending estimates the U.S. banking customers paid $14 billion dollars in overdraft fee last year, and the industry has gotten in trouble in the past for shady tactics like transaction reordering, where a bank would reorder a day’s debits and withdrawals to extract the most overdraft fee income from its customers that day.
Not surprisingly with a Republican President and Republican controlled congress, everything is in Wall Street’s favor going forward. Mr. Cordray’s term at the CFPB will end in mid-2018 but he is expected to step down before then to make a run for Governor of Ohio. Trump will be able to choose his own appointee and will likely pick someone who will no doubt favor the big banks.
So much for draining the so called swamp.
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The CFPB was created after the financial crisis as part of the Dodd-Frank financial regulatory reform law that passed in 2010. The bureau was crafted to be independent and powerful, funded by the Federal Reserve instead of through the traditional Congressional appropriations process. Its director has considerable authority to pursue issues he or she considers important and generally cannot be removed from office.