A national consumer group is denouncing a new law signed by President Trump that blocks consumers from filing class-action lawsuits against credit card companies and big banks like Equifax and Wells Fargo.
“President Trump stood shoulder to shoulder with big banks and turned his back on all of us,” Michael Best, senior policy advocate at the Consumer Federation of America (CFA), said in a statement. “With a stroke of a pen, the president stripped away the choice, from millions of consumers, to decide on their own how they’ll hold companies accountable when they have been wronged.”
The rule giving bank customers to right to use class-action lawsuits was proposed by the Consumer Financial Protection Bureau (CFPB), a government watchdog created by Congress in the aftermath of the 2008 financial crisis. The rule was designed to crack down on predatory lenders and overly aggressive or deceptive debt collectors.
President Trump’s approval of the reversal, however, means the new rule will not go into effect as intended in 2019. Under the Congressional Review Act, the House and Senate were allowed 60 legislative days to overturn the rule. The reversal cleared the House and Vice President Mike Pence broke a 50-50 tie in the Senate to block the rule's passage.
President Trump signed the legislation to kill the new rule Wednesday.
"The rule would harm our community banks and credit unions by opening the door to frivolous lawsuits by special interest trial lawyers," White House spokeswoman Sarah Huckabee Sanders said in defense of the reversal.
Opponents of the rule, including Treasury Secretary Steve Mnuchin and big banks themselves, argued successfully that allowing consumers and plaintiff attorneys to mount class-action lawsuits would create an onerous expense for credit card issuers and banks.
The rule would have prohibited financial companies from using forced arbitration clauses in their contracts with consumers to prohibit class-action lawsuits.
While Republicans and the White House have used credit unions' size and community lending success as a hammer to reverse the rule, fewer than 10 percent of credit unions use forced arbitration clauses with their members, according to the CFA.
Republicans also argued that the arbitration system has worked well for consumers and that payouts for the average consumer in arbitration cases are, relatively speaking, much larger and come more quickly than relief gained through class-action lawsuits.