U.S. Senators from Kansas Pat Roberts and Jerry Moran voted with fellow Senate Republicans on Tuesday to nullify a new banking rule that would have guaranteed consumers’ right to file class-action lawsuits.
The rule issued by the Consumer Financial Protection Bureau had yet to take effect when senators voted 51-50 to nullify it. Vice President Mike Pence had to break the tie.
Republican Senators Lindsey Graham, of South Carolina, and John Kennedy, of Louisiana, voted against the measure.
Under the rule, banks would not have been allowed to continue asking consumers to sign mandatory arbitration clauses. Those agreements ban consumers from filing class action lawsuits and instead, direct them to settle the dispute through arbitration with the company. Supporters of the rule say it protects consumers by allowing them to take action against banks or credit card companies.
Critics, including Roberts and Moran, contend class action suits are costly and don’t yield large settlements.
“Sen. Moran believes Kansas consumers who are financially harmed deserve the chance to pursue legal action that will help them get the money they are owed,” his office said in an email Wednesday. “Had the CFPB rule gone into effect, the restitution that would have previously been paid to wronged consumers would instead have been used to pay the exorbitant legal fees associated with class action lawsuits.”
Roberts’ spokeswoman, Sarah Little, said in an email Roberts voted to overturn the rule because it would “drive consumers into costly class action suits, which seldom prevail.”
“It is clear that eliminating the use of arbitration would result in less effective consumer protection and remedies, while simply enriching class-action lawyers,” Little said.
The Consumer Financial Protection Bureau was created after the 2008 financial crisis to protect consumers from “unfair, deceptive or abusive practices.” The House already voted to nullify the rule.
Supporters of the rule say it gives consumers the ability to group together and go to court rather than being forced to arbitrate their claims. Massachusetts Sen. Elizabeth Warren, a Democrat and critic of big banks, said the rule didn’t block consumers from voluntarily arbitrating banking disputes.
“The rule simply says that consumers should also have the freedom to go to court if they prefer it,” Warren said in a speech on the Senate floor.
Warren noted recent financial scandals, like revelations that Wells Fargoemployees opened fake accounts to meet sales goals and the credit-monitoring agency, Equifax, exposed the social security numbers and personal information of more than 140 million Americans. She said she thought revoking the rule prioritized banks over constituents.
“And somehow we’re about to vote on a Republican proposal that makes it harder for consumers to hold companies like Wells Fargo and Equifax accountable,” Warren said. “I know it sounds nuts, but it’s true.”
Spokeswoman Jennifer Montgomery said in an email Attorney General Derek Schmidt thought the structure of the CFPB was unconstitutional, casting “doubt on the validity of all the regulations the agency has promulgated.” She indicated arbitration may be more beneficial for some consumers.
“In any event, consumers who are injured by deceptive or unconscionable business practices are welcome to file state-law complaints with our office,” Montgomery said.