WASHINGTON (Reuters) - After the U.S. Congress killed a rule allowing customers to band together to sue financial firms over disputes, the door may open for a similar attempt to push back a new rule curbing payday lenders, said lawyers and lobbyists on Wednesday.
The Senate on Tuesday killed a rule banning banks, credit card issuers and other financial companies from using “forced arbitration” clauses in account contracts, the most significant roll-back of Obama-era financial policy since President Donald Trump took office.
The decision, passed by a narrow majority of 51 to 50, could set the stage for further attacks on rules enacted by the Consumer Financial Protection Bureau, a regulator created after the financial crisis of 2007-09. Consumer advocates say it plays a critical role in protecting Americans against financial abuse.
New restrictions on payday lenders - also known as “small-dollar” lending - are seen as the potential next target.
“I think payday lending is the next big fight,” said Gynnie Robnett, campaign director for Americans for Financial Reform. “The payday lending industry, they are tenacious. This will be a fight and a long fight, for sure.”
Republicans killed the arbitration rule using a legal mechanism known as the Congressional Review Act (CRA) that allows Congress to repeal new federal regulations issued by government agencies.
“The industry decided that before they move forward on that (payday lending) rule to see what happened with arbitration. So I think there will certainly be an effort to see what kind of an appetite the Republicans have for an override,” said Alan Kaplinsky, a frequent critic of the bureau’s rules who leads the consumer financial services group at law firm Ballard Spahr.
This month, the CFPB finalized a rule restricting lenders’ ability to profit from high-interest, short-term loans. The CFPB says the move will protect consumers from falling into debt traps but U.S. payday lenders say it could all but wipe out profits in their $6 billion industry.
Some Republican lawmakers, who often say the CFPB rules are too onerous, are pushing to repeal the rule. But this time they should find it much harder to attract support for firms that are often accused by consumer advocates of preying on the poor.
Killing the payday lending rule will probably also face opposition from big banks, the most powerful financial services lobby in Washington. The banks are poised to scoop up much of payday lenders’ business under the new regime.
But payday lenders said the arbitration decision set a precedent for Congress to curtail what they described as the CFPB’s unchecked overreach.
“Congress has taken a meaningful step towards holding this rogue agency to account by overturning the arbitration rule,” said Jamie Fulmer, senior vice president of public affairs at lending company Advance America. “Now this same standard must be applied to all of the CFPB’s fatally-flawed rules.”
Ed D’Alessio, executive director of the Financial Service Centers of America, a lenders lobby group, said Congress killed the arbitration rule because it was based on faulty research, which he said was also the case for the payday lending rules.
“We hope lawmakers will do the same when it comes to the small-dollar loan rule.”
A spokesperson for the CFPB was not immediately available for comment, but public records show it closely followed the law throughout the payday rulemaking process.
On Tuesday, CFPB Director Richard Cordray, a Democrat appointed by former President Barack Obama, said of the Senate vote: “Wall Street won and ordinary people lost.”
Reporting by Michelle Price, Lisa Lambert and Pete Schroeder; Editing by David Gregorio