Senate Republicans voted late Tuesday night to kill a new rule which would have made it easier for consumers to band together and sue financial companies.
The measure overturns the so-called arbitration rule, which would have banned banks, credit-card companies and other financial firms from requiring customers to settle disagreements through arbitration rather than in the courts. The mandate often appears as a fine-print clause in customer agreements.
The repeal comes despite the recent uproar over the inclusion of a mandatory arbitration clause by Equifax in its free-monitoring service agreement. In that case, the credit-reporting firm — which offered the service after revealing a massive data breach in early September — ended up removing the clause.
"When people are cheated, they believe they have the right to go to court," said Paul Bland, executive director of Public Justice. "The next time something like Equifax happens, those Senators are going to have to own this."
If the rule had been fully in effect when Equifax offered the service, it would have been banned from including the clause.
Mandatory-arbitration clauses already are prohibited in mortgage contracts, by the 2010 Dodd-Frank financial reform act.
Congressional Republicans, along with the banking industry and some other business groups, have had a bull's eye on the arbitration rule since the Consumer Financial Protection Bureau issued it July 10. The Republican-dominated House approved the resolution on July 25.
Since then, it idled in the Senate Banking Committee while Republican leaders sought to shore up support for the measure. Tuesday night's vote was 51-50, with Vice President Pence casting the tie-breaking vote. Just two Republicans voted against the repeal: Senators Lindsey Graham of South Carolina and John Kennedy of Louisiana.
The repeal effort was in play due to the Congressional Review Act, which gives lawmakers 60 legislative days to overturn any new federal rule by resolution.
A Treasury Department report released Monday might have provided ammunition for opponents by saying it will impose more than $500 million in additional legal defense fees and transferring $300 million to plaintiff's lawyers. The report also says the consumer bureau failed to consider "less onerous" alternatives.
"We passed this resolution to protect consumers from wrongdoing, while avoiding frivolous lawsuits that will drive up costs for the millions of Americans who carry a credit card," said Senate Majority Leader Mitch McConnell, R-Kentucky, in a statement.
Meanwhile, although consumers should read agreements with banks carefully for a possible opt-out option from mandatory arbitration, there's a good chance they won't find it.
"There are a lot of products where people don't have any choice," Bland said.