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GOP senators are aiming to adopt a resolution that would block implementation of a Consumer Financial Protection Bureau rule that limits financial institutions’ ability to require arbitration clauses in consumer contracts, according to Sen. Tom Cotton (R-Ark.), who said that the goal is to get the measure to President Donald Trump’s desk before the August recess, MorningConsult.com reported yesterday. Cotton, who’s a member of the Senate Banking Committee, said that he’s working with Chairman Mike Crapo (R-Idaho) to rally enough votes for the Senate to adopt a disapproval resolution under the Congressional Review Act. Amanda Critchfield, spokeswoman for the banking panel, confirmed that Crapo is collaborating with Cotton. The CFPB’s rule, which was published yesterday in the Federal Register, is slated to take effect on Sept. 18. A separate deadline for companies to come into compliance is set for March 19. Cotton said he’s hoping that the House will take up its own disapproval resolution as early as next week.

Federal regulators continued to trade words yesterday over a new rule favoring class-action lawsuits for financial products, the Washington Examiner reported. Consumer Financial Protection Bureau director Richard Cordray defended the finalized the rule limiting mandatory arbitration that was proposed last week. In response to acting comptroller Keith Noreika's call to halt the rule to allow him to examine whether it could hurt banks, Cordray said in a letter sent yesterday that there isn't "any plausible basis" for Noreika's concerns. The impact of the rule would be less than $1 billion annually, Cordray said. "So on what conceivable basis can there be any legitimate argument that this rule poses a safety and soundness issue?" he asked. Calling Noreika's claim "plainly frivolous," Cordray added that he questioned the appropriateness of the review. Noreika responded yesterday that he appreciated Cordray sharing the data underlying the analysis of the rule's impact on banks and said that he and his staff would conduct their own review of the bureau's analysis of how the rule could affect banks.

Sears Holdings Corp. and its chief executive, Eddie Lampert, are being sued for allegedly encouraging participants in its 401(k) plan to buy company stock despite well-publicized struggles that have battered Sears shares since 2014, the Wall Street Journal reported yesterday. The lawsuit, filed on Friday in Illinois federal court, requested class-action status on behalf of participants in the Sears Holdings Savings Plan, which suffered “tens of millions of dollars of losses” on Sears stockholdings in the past three years. Those losses would have been “minimized or avoided” if plan administrators had stopped offering Sears shares as an investment option sooner, according to the complaint. The 401(k) plan froze purchases of Sears shares at the end of 2016, “too little, too late, to protect a great deal of [the] participants’ retirement savings,” the complaint said. Sears stock lost 80 percent of its value in the three years before the lawsuit.

Lawyers for people injured by Takata Corp's defective air bags told a U.S. judge yesterday that there was "no basis" for an "unjust" request by the company's U.S. unit to halt hundreds of consumer lawsuits against car companies that used the air bags, Reuters reported. When the U.S. unit filed for bankruptcy in June, litigation against the unit for injuries, wrongful death, economic losses and breaches of consumer protection laws were automatically stayed. Last week, Takata's U.S. unit asked for a preliminary injunction that would halt similar lawsuits against Honda Motor Co., Toyota Motor Corp. and other car companies that used the air bags. Halting the litigation would help Takata sell its healthy business to Key Safety Systems, which is owned by China's Ningbo Joyson Electronic Corp, according to TK Holdings Inc., the U.S. unit. Funds from that $1.6 billion proposed sale will be used to compensate injured drivers, according to court papers filed in the U.S. Bankruptcy Court in Wilmington, Del.

A fight between regulators escalated Monday when President Trump’s acting national banking regulator urged the Consumer Financial Protection Bureau to delay a rule barring mandatory arbitration requirements between financial firms and customers, the Wall Street Journal reported today. Acting Comptroller of the Currency Keith Noreika yesterday asked CFPB Director Richard Cordray to halt the rule, which could ease the way for class-action litigation against companies, until his office can assess the data behind the rule and verify it won’t put banks in financial risk. The letter is the third between Noreika and Cordray since the CFPB announced its arbitration rule last Monday. “The OCC should be granted the opportunity to conduct an independent review of the CFPB data to determine the safety and soundness implications of the Final Rule,” Noreika wrote. Noreika raised concerns about the rule the day it was announced by the CFPB, saying that it presented potential risks for banks. He said that the CFPB rule could allow lawsuits that could harm a bank’s reputation and financial performance, and ultimately drive up bank costs on consumers. Cordray responded to the acting comptroller on Wednesday, saying that he was “surprised” by the OCC’s letter. “At no time during the (two-year process of preparing the rule) did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system,” Cordray said in the July 12 letter.

The global recall of Takata Corp's defective air bags widened last week and the number of confirmed deaths rose, but legal experts said that the bigger worry for car companies caught in the fallout is playing out in a Delaware bankruptcy courtroom, Reuters reported today. Earlier this month, people injured by the air bags, which degrade over time and can inflate with excessive force, were appointed to their own official committee in the Japanese company's U.S. bankruptcy, giving them a powerful voice in the proceedings. This committee, which includes people whose cars lost value due to the recall, will be pitted against Honda Motor Co, Toyota Motor Corp, and other automakers. The car companies have been trying to use the bankruptcy to limit their liability for installing the faulty air bags, said Kevin Dean, a Motley Rice attorney who represents injured drivers on the committee. Because the committee has official status, Takata must provide it with funds which can be used to investigate the automakers' liability or to challenge financial assumptions. Without a committee, plaintiffs' lawyers would typically have to pay for that themselves. “If I were a plaintiffs’ lawyer, this would be a golden goose for me,” said John Pottow, a professor at the University of Michigan Law School, of the appointment of the special committee. In the Takata case, the committee of injured drivers will sit alongside another made up of suppliers and vendors, who are likely more interested in the future of the business than compensation disputes, according to bankruptcy attorneys who are not involved in the case. Both committees were appointed by the U.S. Trustee's Office. Seventeen fatalities, including one confirmed last week, and at least 180 injuries have been tied to Takata's air bags since at least 2009. Read more. 

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The Consumer Financial Protection Bureau yesterday finalized a sweeping new rule banning arbitration agreements that prevent class actions against banks and other financial institutions, the Legal Times reported. "Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," said CFPB Director Richard Cordray. "These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together." The move comes more than a year after the CFPB proposed the rule for arbitration agreements, calling such terms “contract gotchas” that allow the financial industry to sidestep the legal system. In taking the final step to push forward with the rule, the CFPB crossed off a bucket-list item for Cordray as he enters the final year of his five-year term and mulls a run for governor in his home state of Ohio. The rule will take effect 60 days after it is published in the Federal Register and apply to contracts entered into more than 180 days after that date.

People injured by Takata Corp's defective air bags were given an official committee in the bankruptcy of its U.S. unit yesterday, allowing them to challenge restructuring plans that plaintiffs' lawyers have criticized as protective of automakers, Reuters reported. A seven-member committee will represent economic loss and personal injury or tort claimants, David Buchbinder, a lawyer with the U.S. Department of Justice's U.S. Trustee Program, told a meeting of creditors of Takata's U.S. business. William Weintraub, a lawyer with Goodwin Procter who is not involved in the Takata case, said that he expected the committee "to be active and to make sure that the claims of the car manufacturers are not treated preferentially and that tort victims are fairly compensated." A second five-member committee of suppliers and vendors was also appointed, according to Buchbinder.

Lawyers for people injured by exploding Takata Corp. air bags told a U.S. bankruptcy court judge yesterday that the company's restructuring plan is being skewed to benefit automakers over victims, Reuters reported. TK Holdings Inc, the U.S. business of Takata, filed for chapter 11 bankruptcy on Sunday due to tens of billions of dollars of liabilities from recalls and lawsuits over its air bags, along with 11 Mexican and U.S. subsidiaries. Most of Takata's obligations are owed to automakers for recalling and replacing millions of its air bags, and the Japanese supplier's restructuring plan relies heavily on financial support from its customers. Several personal-injury lawyers told U.S. Bankruptcy Judge Brendan Shannon that Takata had made too many concessions to automakers, without investigating the value of their claims. Lawyers for TK Holdings and General Motors Co. argued that the need for financing outweighed the need to investigate the protections granted to the automakers, which could be investigated later. Authorities have linked 16 deaths, mostly in the United States, and more than 180 injuries to explosions of Takata air bag inflators made with ammonium nitrate that became volatile with age and prolonged exposure to heat.

Embattled airbag maker Takata Corp. filed for bankruptcy protection in Japan and said that it would seek $1.588 billion in financial aid from U.S.-based auto parts supplier Key Safety Systems, Reuters reported yesterday. The KSS deal would help it deal with the fallout from its defective airbag inflators at the centre of the global auto industry's biggest ever recall, the two companies said in a joint statement. The filing at the Tokyo District Court followed a Chapter 11 bankruptcy protection filing in the United States. As part of the bankruptcy protection plans, KSS would acquire all of Takata's assets barring certain assets and operations related to the airbag inflators involved in the global recall in the planned deal worth $1.59 billion. Takata would keep operations of its affected inflators for now to continue supplying recall replacement parts, and would eventually wind down those operations, the two companies said in a statement.