The U.S. Senate sounded a death knell for financial class action lawsuits last week by voting to block a rule from the Consumer Financial Protection Bureau that would have cleared a path for consumer class actions against financial institutions when forced arbitration clauses have instead become the norm.
The Senate voted Tuesday night 50-50 with Vice President Mike Pence becoming the tie-breaking vote in favor of striking down the rule. The rule was largely criticized within the business community as one that would be costly to businesses without doing much to help consumers. And in striking down the rule, the Senate relied on a little-used congressional rule to give legislators the opportunity to block a rule before it goes into effect. Between the time the Department of the Treasury published a 17-page report on the CFPB rule and when the Senate voted, the issue became one of one federal agency against another, bankers against lawyers and consumers against financial institutions.
The rule was finalized in July, with a focus on mandatory arbitration clauses in contracts from financial institutions — what would typically be required when signing for a loan, credit card or background check. Within the CFPB, the rule was seen as a core part of the agency’s mission to protect consumers, part of the Dodd-Frank Wall Street Reform Act in 2010. Then, the CFPB was tasked with studying arbitration clauses in financial markets and draft regulations that would strengthen consumer protection in relation to the findings.