The Senate on Tuesday voted to scrap a rule adopted by a federal consumer agency headed by former Ohio Attorney General Richard Cordray which allowed Americans to join class-action lawsuits against their financial institutions.
Vice President Mike Pence cast the tie-breaking vote to kill the rule, which was adopted this summer by the Consumer Financial Protection Bureau and designed to provide consumers with a stronger hand in disputes with financial companies.
Before the rule was implemented, most credit card companies required consumers to take their disputes to mandatory arbitration.
Sen. Rob Portman, R-Ohio, voted to kill the rule while Sen. Sherrod Brown, D-Ohio, voted to keep it. The final vote was 51-50.
In a statement after the vote, Cordray called the vote "a giant setback for every consumer in this country. Wall Street won and ordinary people lost." Cordray urged President Donald Trump to veto the resolution, but Trump is expected to sign it.
The nation’s banks have vigorously objected to the rule, arguing it imposes new costs on them. A Treasury Department report released Monday contended the rule would cost financial companies $1.7 billion in additional legal settlements during the next five years.
The Republican-controlled House voted this past summer to kill the rule — issued in July by the bureau Cordray has headed since it was officially launched in 2012. If the Senate musters 51 votes, the rule would be invalidated.
A 1996 law approved by Congress allows a simple majority in both the House and Senate to rescind an agency rule. The law means Democrats could not block Republican efforts with a filibuster.
But Tuesday’s sharp debate dealt with more than just the rule because congressional Republicans have opposed the consumer bureau since it was created in 2010 through a financial overhaul law signed by President Barack Obama.
Many Republicans have aimed their fire at Cordray, who in 2012 became the first director and is considered a potential Democratic candidate for governor of Ohio next year.
In a floor speech, Sen. Sherrod Brown, D-Ohio, said “arbitration takes power from ordinary people” and provides Wall Street companies and banks with a major advantage.
In an opinion piece last August for The New York Times, Cordray said his bureau “found that group lawsuits get more money back to more people. In five years of group lawsuits, we tallied an average of $220 million paid to 6.8 million consumers per year. Yet in the arbitration cases we studied, on average, 16 people per year recovered less than $100,000 total.”
Sen. John Cornyn, R-Texas, charged that Democrats were less interested in the rights of consumer and instead were “arguing on behalf of the trial bar, which gets rich on these cases.”
Earlier Tuesday, Cordray criticized the Treasury report in a letter to Treasury Secretary Steven Mnuchin. In a highly unusual public dispute between two federal agencies, Cordray said it “overstates the costs” of allowing Americans to join class-action lawsuits against credit card companies and banks.
Cordray wrote Mnuchin that the report “underestimates the benefits from class-action settlements, underestimates the deterrence effect of class actions, overstates the cost of class actions and misstates the impact of the arbitration rule on individual arbitration."
“Treasury’s report ignores large parts of the rule — which address the very issues Treasury raises — and misunderstands much of the underlying data,” Cordray wrote. “In fact, the arbitration rule strongly supports the bureau’s conclusion that it is in the public interest and for the protection of consumers.”
The report concluded that “it is far more likely that the rule will generate massive economic costs — borne by businesses and consumers alike.”