WASHINGTON — Democrats have strived to paint recent scandals at Wells Fargo and Equifax as prime examples of why a regulatory rule banning mandatory arbitration agreements should be upheld, but Republicans are not wavering in their campaign to overturn it.

The House has already passed a bill under the Congressional Review Act to repeal the Consumer Financial Protection Bureau rule. But it’s unclear if Republicans in the Senate have the votes, or whether they can find the floor time before their window to act closes.

“The clock is ticking and we are very close on votes and I am ready to support a resolution of disapproval,” said Sen. Thom Tillis, R-N.C.

Sen. Mike Rounds, R-S.D.
"We are going to have some additional discussion, but let’s get the facts first and let [the Equifax scandal] clear a little bit first,” before attempting to repeal the CFPB mandatory arbitration rule, said Sen. Mike Rounds, R-S.D., last week. Bloomberg News

The CFPB released the rule, which bans the legal clauses that prevent consumers from joining together and filing class-action lawsuits, in July. However, Republicans view the rule as giveaway to trial lawyers who traditionally support Democrats and say it will open up banks and other financial firms to frivolous lawsuits.

The GOP is attempting to use an obscure legislative process called the Congressional Review Act to overturn the rule. Under the constraints of the procedure, Republicans have 60 legislative days to reject the rule with a simple majority.

But with a narrow majority and Sen. Lindsey Graham, R-S.C., already saying he won’t support the effort, votes will be close.

That, in part, is why Democrats have seized on the recent revelation that Equifax included an arbitration agreement as part of a credit monitoring service it was offering customers after it was discovered that a cyber breach exposed the personal information of 143 million consumers.

“This is just one more example why the Consumer Financial Protection Bureau’s rule banning forced arbitration is badly needed to protect the rights of working Americans,” Sen. Sherrod Brown, D-Ohio, said in a statement after Equifax disclosed the breach.

Sen. Elizabeth Warren, D-Mass., also quickly took to Twitter to denounce the arbitration clause. The public blowback was significant enough that the credit bureau eventually removed the clause altogether.

Yet GOP lawmakers were quick to draw a distinction between the use of the arbitration clause and the breach itself.

“I don’t necessarily want to conflate” the Equifax breach “with the arbitration rule,” Tillis said.

The financial services industry is also fighting back against that comparison. Ryan Donovan, chief advocacy officer at the Credit Union National Association, said using the breach as a reason to support the arbitration rule is a “red herring because it is a totally different situation in which consumers who had no established relationship with Equifax could have been forced to arbitrate certain claims.”

“Also, lost in the confusion is that the clause did not even apply to the breach itself,” Donovan said.

Senate Banking Committee Chairman Mike Crapo, R-Idaho, who authored the Senate resolution, said he is confident that Republicans won’t be changing their mind because of the Equifax breach.

“I believe the issue is out there and they are well informed already,” Crapo said.

Democrats had previously been using the phony-accounts scandal at Wells as an example of why the arbitration rule should be upheld. The bank at one point was attempting to use arbitration clauses that customers signed when opening legitimate accounts to protect itself against litigation over the fake accounts.

But analysts said Democrats may have gone too far in tying corporate misconduct with policy goals.

“The arbitration issue has become so muddied that it is increasingly difficult for Democrats to draw a straight line from the scandals on the front page to the arbitration [Congressional Review Act resolution] itself,” said Isaac Boltansky, an analyst at Compass Point. “First, Wells Fargo is the reason the arbitration rule needs to be protected. And then it’s Equifax, and at that point it is a confluence of different scandals that make it more difficult to hone a clear and crisp message for those supporting the rules.”

Warren went on CNBC on Tuesday to say the problems at Wells and Equifax are also the reason that top management at both firms should be removed.

“The total tonnage of news is actually making it more difficult for Democrats to hone a crisp message regarding the arbitration rule,” Boltansky said.

If anything, Republicans may simply bide their time before passing the resolution to overturn the CFPB’s arbitration rule.

“I think we are going to have some additional discussion, but let’s get the facts first and let [the Equifax scandal] clear a little bit first,” Sen. Mike Rounds, R-S.D., said last week.

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