NEW YORK - Call it a win for "the swamp."
President Trump and Republicans in Congress handed Wall Street banks a big victory by effectively killing off a politically popular rule that would have allowed consumers to band together to sue their banks.
The 51-50 vote in the Senate, with Vice President 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 their bank. They effectively waive the customer's right to sue.
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.
President Trump is expected to sign the Senate resolution into law, overturning yet another Obama administration initiative.
Trump spent months of the 2016 campaign accusing his opponent Hillary Clinton of being in the pocket of the big banks and therefore unwilling to take on Wall Street.
At least among voters, the CFPB's regulations had bipartisan support. A poll conducted by the GOP-leaning American Future Fund found that 67 percent of those surveyed were in favor of the rules, including 64 percent of Republicans. Other polls on the subject show similar levels of support.
The overturn marks a significant victory for Wall Street. After the financial crisis, Congress and the Obama administration enacted substantial new regulations on how banks operated and fined them tens of billions of dollars for the damage they caused to the housing market. But since Trump's victory last year, banking lobbyists have felt emboldened to get some of the rules repealed or replaced altogether. Top or near the top of the list was the CFPB's arbitration rules.
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.
The big banks and their lobbyist groups are calling this a victory for U.S. consumers, saying that arbitration is faster and the rules would have been an economic stimulus package for class-action trial lawyers. They also cite statistics from the Consumer Financial Protection Bureau's own 2015 study that show that the average award from a class-action lawsuit is roughly $32 while an award from arbitration is $5,389.
But reality is more complicated. At best, the banking industry's arguments twist the truth.
The reason why the award for most class-action suits is small is because people don't typically sue their bank individually over a small sum of money, such as an overdraft charge or account service fee, because it's not worth the financial effort to recover a $10, $25, or $35 fee. Arbitration cases are less common, and usually involve more substantial disputes, hence the larger awards. Also, the majority of consumers resolve their dispute with their banks in person, typically at a branch or over the phone.