by Howard Haykin

For better or for worse, the Republican-controlled Congress is half-way toward repealing the new controversial rule from the Consumer Financial Protection Bureau (CFPB) that would enable consumers to bring or join group lawsuits – aka “class action lawsuits” – against financial services firms. [See CFPB posting, “New protections against mandatory arbitration”]

The House of Representative voted 231-190 to repeal the rule using the Congressional Review Act – which allows Congress to eliminate regulations within 60 days of their release and bars agencies from issuing similar rules in the future. One Republican joined all Democrats in voting against repeal. The repeal resolution now moves to the Senate, where 24 Senators have introduced a similar resolution. Of course, Senate Republicans have a smaller, if not slim, majority.

The CFPB arbitration rule forces companies to re-write the arbitration clauses in New Accounts Agreements so that consumers are not prohibited from joining class-action lawsuits. It also mandates that financial firms hand over information about “initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration.”

In a Tuesday editorial, the WSJournal Editorial Board endorsed repeal of the arbitration rule, while accusing CFPB head Richard Cordray of embarking on “a regulatory tear as he prepares to run for Governor of Ohio.” [see WSJournal, "Repealing the Arbitration Rule"]

But not everyone in the business community wants the new rule repealed. In its opinion piece, "The GOP's Foolish Decision," U.S. News says that overturning the new "anti-forced arbitration regulation" would be a political and policy mistake. Their reasoning is that, "in reality, the clauses are often imposed on consumers without informed consent, and are increasingly being used to shield corporate wrongdoing." As such, the new rule protects Americans from the negative effects of forced arbitration clauses in a host of financial contracts - and such clauses are already banned in mortgages and real estate.

In any event, Wall Street is pulling for the appeal - and the only remaining question is not "if," but "when."