Trump kills class-action rule against banks, lightening
Wall Street regulation
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[November 02, 2017]
By Lisa Lambert
WASHINGTON (Reuters) - President Donald
Trump signed a Congressional resolution on Wednesday that lets banks
block customers from filing class action lawsuits, partly delivering on
his election campaign promise to lighten U.S. financial regulation.
The White House confirmed Trump signed the resolution, which kills a
Consumer Financial Protection Bureau (CFPB) rule released in July,
despite heavy lobbying for a veto by the president.
The rule, set to go into effect next spring, gave bank customers the
option to band together in lawsuits known as class actions to lower
their legal costs, but Republicans say the suits only benefit attorneys
who reap large fees. They also argue arbitration is faster and leads to
larger awards. Democrats say arbitration is rigged against customers and
the U.S. constitution guarantees a right to a trial.
Trump vowed as a presidential candidate to lighten the bank regulation
introduced after the 2007-09 financial crisis, but this was his first
concrete action since taking office in January.
Regulation critics, who say federal bureaucracy suffocates economic
growth, now hope Republicans will use their control of both Congress and
the White House to swiftly undo more financial rules.
The CFPB rule barred banks, credit card issuers and other financial
companies from requiring customers to sign away their rights to join
group lawsuits and agree to take potential disputes to closed-door
arbitration as a condition of opening accounts.
The resolution was passed under the Congressional Review Act, which
stops regulators from creating a similar rule in the future, and
"mandatory arbitration clauses" will likely remain in contracts for
consumer financial services for decades.
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U.S. President Donald Trump hosts a tax reform industry meeting at
the White House in Washington, U.S., October 31, 2017. REUTERS/Kevin
Trump and the Republican party could also have an easier time protecting
companies' ability to block customers from suing in a wide variety of
non-financial services. Education Secretary Betsy DeVos is working to keep the
clauses in contracts related to higher education.
CFPB Director Richard Cordray, a Democrat appointed by former President Barack
Obama, took the unusual step on Monday of directly asking Trump to veto the
resolution. The country's largest veterans service organization, the American
Legion, made a similar plea.
The Supreme Court ruled arbitration clauses are constitutional in 2011, and they
are now standard for almost every consumer product.
Equifax Inc. included a mandatory arbitration clause in free credit monitoring
it offered to victims of its massive cyber hack earlier this year, and later
Wells Fargo & Co customers caught up in last year's phony accounts scandal have
had difficulty suing the bank because they are bound by clauses in contracts
they signed for legitimate accounts.
(The story is refiled to clarify in paragraph three that rule was not in effect
(Reporting by Lisa Lambert; editing by Clive McKeef)
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