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.
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 removed it.
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 yet)
Reporting by Lisa Lambert; editing by Clive McKeef