The Finance 202: Wall Street will soon test its clout with Senate Republicans – Washington Post
Big banks are about to find out how far Senate Republicans will go to get them out of a jam.
The Consumer Financial Protection Bureau dropped a hammer blow on the industry Monday by adopting a rule that will allow consumers to bring class-action suits against financial firms. The move prohibits banks from tucking mandatory arbitration clauses into contracts for credit cards, bank accounts and other financial products. For years, those binding agreements forced customers to waive their right to sue in the event of a dispute.
The CFPB has been working on the rule effectively since its inception — the 2010 Dodd-Frank law that created the bureau also gave it explicit authority to ban the practice. But industry lobbyists and activists alike agreed Monday that the rule’s finalization amounts to the CFPB’s most significant action in its five-year history.
The outline of an industry-backed plan to roll the rule back is already taking shape. Working through their Washington trade associations, banking interests plan to lean on congressional Republicans to scrub the rule from the books.
GOP lawmakers can do that with simple majority votes in both chambers by using the Congressional Review Act, a little-used 1996 law that Republicans employed to erase 14 Obama-era rules earlier this year. House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) in a Monday statement signaled House Republicans will move to do just that: “As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” he said.
The law allows Republicans to nullify new federal regulations with simple majorities in each chamber, meaning Senate Republicans could do so without having to meet the typical 60-vote threshold for action. Lawmakers must act within 60 legislative days of the rule’s publication in the federal register, a clock that should start ticking within the next couple of weeks.
Republicans in the lower chamber should have little trouble approving a resolution to do away with the rule. The real test will come in the Senate. In May, Senate Republicans failed to muster enough support to scotch a CFPB rule regulating prepaid debit cards.
Richard Hunt, president and CEO of the Consumer Bankers Association, described that fight to the American Banker as “single-A baseball,” while the pending battle over arbitration will be the major leagues. One industry lobbyist framed the stakes simply: “Do Republicans want to take a party-line vote on this? It depends on whether it can be spun as small bank relief.”
Amanda Werner, who is leading a campaign by Americans for Financial Reform and Public Citizen to uphold the rule, said the CFPB’s allies have an uphill fight ahead. “Republicans who try to roll this back will hear about it in 2018,” she said. “We think we can win. It’s not going to be easy.”
Her side needs to find three Senate Republicans who will back the rule. The May fight over the prepaid accounts provides a playbook: Advocacy groups ran ads targeting Sens. Susan Collins (Maine), Dean Heller (Nev.), and Lisa Murkowski (Alaska) — and had a shortlist of other GOPers they believed would oppose repeal. Republican leaders knew the measure lacked the votes it needed and never brought it to the floor. (In a Monday note to clients, Compass Point’s Isaac Boltansky pointed to other factors, including a fractured industry strategy and a delayed effective date that diminished the urgency of action.)
The U.S. Chamber of Commerce will likely take a leading role driving the industry’s pushback.
David Hirschmann, president and CEO of the group’s Center for Capital Markets, said the chamber is exploring its legal and legislative options, including a Congressional Review Act challenge. “We’re not making any decisions today, but we know how important this is to opening our members up to the jackpot of class-action lawsuits,” he said, calling the rule a giveaway to the trial bar.
The New York Times, which investigated the spread of arbitration, has this background:
There is no federal database that tracks arbitrations, and the process is entirely secretive.
To get beyond the anecdotal, The New York Times assembled its own database of arbitrations in a series of articles in 2015 that showed that few people ever go to arbitration.
In financial disputes, the numbers are particularly startling. In its investigation, The Times found that from 2010 to 2014, only 505 consumers — a fraction of the tens of millions of Americans whose financial contracts have arbitration clauses — went to arbitration over disputes of $2,500 or less.
That reluctance is why one federal judge remarked in an opinion that “only a lunatic or a fanatic sues for $30.”
By banning class actions, companies essentially squashed challenges to practices such as predatory lending, wage theft, sexual discrimination and medical malpractice.
Among the class actions derailed over the years by arbitration was a case brought by Citigroup customers who accused the bank of tricking them into insurance that they were never eligible to use. In another, a group of merchants challenged American Express over high processing fees.
The Trump administration for the moment appears inclined to take a hands-off approach. Although speculation swirled that President Trump would sack Richard Cordray, the CFPB director, after taking office, he now looks disinclined to do so — in part because the move would likely bolster Cordray’s standing back in his native Ohio ahead of a potential bid for governor next year. The White House instead will let the Congressional Review Act process play out, meaning Senate Republicans hold the key to the industry’s fate on the matter.
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— The scandal of the Trump team’s Russia ties turned a very dark corner last night, when the New York Times dropped this bombshell: Donald Trump Jr. was informed via email before his June 2016 meeting with a Kremlin-linked lawyer that she’d offer him dirt on Hillary Clinton “as part of a Russian government effort to aid his father’s candidacy.”
The email from publicist Rob Goldstone — the New York Times reported, citing three people with knowledge of the message — “indicates that the Russian government was the source of the potentially damaging information. It does not elaborate on the wider effort by Moscow to help the Trump campaign. There is no evidence to suggest that the promised damaging information was related to Russian government computer hacking that led to the release of thousands of Democratic National Committee emails.”
The revelation appears to mark the first time a member of Trump’s inner circle knowingly sought help from the Russians, with the understanding that the foreign adversary also sought to lift the candidate to victory. The White House is denying President Trump had any knowledge of the meeting — prompting some commentators to note the denial should be taken with a boulder of salt, considering the Trump clan’s closeness and the administration’s self-made credibility problems:
From The Post’s Ruth Marcus:
To buy this you also have to believe he wasn’t told for months and months while the story mushroomed. Inconceivable! https://t.co/PW41fH2IWG
— Ruth Marcus (@RuthMarcus) July 11, 2017
— The White House is finally moving forward with its long-expected nomination of Randy Quarles to serve as the Federal Reserve’s top regulator of the big banks. The nod marks Trump’s first move to put his imprint on the central bank — by selecting a former Treasury official and investment fund manager whom the industry expects will offer a friendlier approach than Daniel Tarullo, the Fed’s forrmer de facto chief regulator.
If confirmed, Quarles will become the Fed’s first vice chair for supervision, a slot created by the Dodd-Frank Act but never filled. The Trump administration last month presented a detailed plan for rolling back regulations on Wall Street, and Quarles would immediately become the key figure in determining how quickly that vision is put into practice. Most industry-watchers believe he’s an institutionalist who will steer a slow and careful course through the political thicket of deregulation.