WASHINGTON (Legal Newsline) — Sen. John Kennedy (R-LA) is still reviewing whether he will vote in favor of overturning a new rule by a consumer-protection agency that forbids financial companies from including contract clauses that bar class-action law suits.
Kennedy is one of three senators who has emerged as a possible roadblock to Republican attempts to overturn the rule, which was announced by the Consumer Financial Protection Bureau (CFPB) in July.
The U.S. House of Representatives voted to overturn the rule, which states that financial-services companies, including banks and payday lenders, cannot include in their contracts with consumers a ban on their involvement in class-action suits. The Senate is likely to vote on the resolution before the end of September.
Opponents of the rule believe it will open the door to plaintiff lawyers seeking to make large amounts of money. They also claim it weakens the ability to arbitrate disputes between consumers and financial companies. It is described as an anti-arbitration rule.
In response to questions on his position regarding the resolution, which was introduced under the Congressional Review Act, Kennedy's spokesperson, Meredith Jones, told Legal Newsline: "He is still reviewing."
Kennedy was the only Republican member of the Senate Banking, Housing and Urban Affairs Committee not to sponsor the resolution to over turn the rule.
Two other Republican senators, Susan Collins of Maine and Lisa Murkowski of Alaska, also have declined to take a public position on the issue. To overturn a rule, only 50 votes are needed, but the vote has to take place within 60 sitting days of resolution's introduction.
As previously reported by Legal Newsline, the Alaska State Chamber of Commerce sent a letter to Murkowski and Alaska’s other senator, Dan Sullivan, urging them to support overturning the rule.
Curtis W. Thayer, president and CEO of the Alaska State Chamber of Commerce, said the group wrote the letter because they heard Murkowski was “undecided.”
“We wanted to make it absolutely clear to her where the business community stands on this,” Thayer said.
Chris Pinkham, president of Maine Bankers Association, said Collins' position on repeal of the anti-arbitration rule is “simply, unclear.”
“Her focus on the current health care debate has been a significant distraction and although we have been in regular contact with her staff, her voting position on the arbitration rule rollback has not been formally addressed,” he said.
Attorneys general from 16 states wrote a letter last week to Senate Majority Leader Mitch McConnell (R-KY) urging the Senate to pass the resolution, S.J. Res. 47. They described the rule as "unlawful."
"As the chief legal officers for our States and our state agencies, we write to urge the Senate to act under the Congressional Review Act (“CRA”) to disapprove the Consumer Financial Protection Bureau’s rule," the attorneys general wrote.
"The Rule is an unlawful regulation that deprives Americans of a convenient, fast, and cost-efficient way to resolve disputes," the letter continued. "The House has already moved under the CRA to undo this harmful and overreaching regulation. We hope the Senate will do the same."
Rep. Keith Rothfus (R-PA) led the successful effort in the House to vote against the rule, describing it as a "pro-trial lawyer, anti-consumer, anti-arbitration rule."
He also cited a CFPB study that said that the average recovery for members of a class action is $32, while the average from arbitration is $5,389.
The 2015 study looked at fiscal 2010-11 and reported a total of 668 arbitration cases in the country. The authors were able to find out information on 32 of 158 cases in which arbitrators sided with the consumer.
In these 32 disputes, the average amount paid out was $5,389 from an average claim of $19,768.
In a letter sent last week to the chief executive officers of more than a dozen financial institutions, Sen. Elizabeth Warren (D-MA) asked their position on the rule.
She wrote that the U.S. Chamber of Commerce, the American Bankers Association and the Financial Services Roundtable have criticized the rule and "lobbied Congress to overturn it."
“These organizations represent your bank and your industry, but you — and other CEOs of large banks — have remained silent on the rule," Warren wrote. "If your lobbyists are taking such strong positions against the rule, is there a reason both you and your bank have been unwilling to take a public position?”
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