WASHINGTON–The Senate has voted in favor of killing the CFPB’s ban on arbitration clauses in financial contracts, which would have allowed class action suits against financial institutions instead of requiring that disputes go to private arbitration.
Both credit union trade groups expressed support for the Senate vote, which follows a similar vote along party lines in the House in July. The legislation will now go to President Trump, who has already indicated he will sign it.
The Senate passed the rule repealing the CFPB rule only after Vice President cast a vote to break a 50-50 vote. Two Republicans, Sen. John Kennedy of Louisiana and Sen. Lindsey Graham of South Carolina, had joined with Senate Democrats in voting against the measure.
The White House issued a statement saying Trump “applauds” Congress for voting to repeal the rule, which would have given consumers “fewer options for quickly and efficiently resolving financial disputes.”
Financial institutions, most especially banks, have been fighting the rule in Congress, arguing it will lead to a wave of class action lawsuits and that the related costs would be passed onto consumers. Consumer groups have been outspoken in favor of the CFPB plan.
Credit unions, which largely do not include language in their contracts language requiring arbitration, have nonetheless been calling for the rule to be repealed.
The rule was to take effect in March of 2018.
“We’re grateful that the Senate, and the House, recognized that the CFPB's arbitration rule did not benefit credit unions members,” said CUNA President/CEO Jim Nussle in a statement. “This rule ignored the different size and member-ownership structure of credit unions and instead treated them as akin to abusive Wall Street banks. The CFPB's rule encourages credit union members to act against their own best-interest by engaging in costly class action litigation which depletes the resources of the membership as a whole and instead benefits trial lawyers most. This rule was just the latest example of the one-size-fits-all rulemaking coming from the CFPB and thankfully Congress acted to remedy the situation.”
NAFCU President and CEO Dan Berger issued a statement that the association “appreciates the Senate taking up this vote in a timely manner. While NAFCU strongly supports consumer protections, credit unions should not have been included in this rulemaking as they are not the bad actors the rule is meant to target. Credit unions should also have access to various forms of dispute resolution, and this rule, as written, could have led to a rise in frivolous lawsuits.”