A U.S. federal judge on Wednesday
upheld an Obama-era rule designed to avoid conflicts of interests when brokers
give retirement advice, in a possible setback for President Donald Trump's
efforts to scale back government regulation.
The stinging 81-page ruling comes
just days after Trump ordered the Labor Department to review the
"fiduciary" rule — a move widely interpreted as an effort to delay or
kill the regulation.
The decision by Chief Judge
Barbara Lynn for the U.S. District Court for the Northern District of Texas is
a stunning defeat for the business and financial services industry groups that
had sought to overturn it.
And while it is not expected to
stop the Labor Department from delaying the rule's April 10 compliance deadline
while it conducts the review, some legal experts say it could make it more
difficult for the Labor Department to find a way to justify scrapping or
significantly altering the rule.
This marks the second time now a
federal district court has upheld the fiduciary rule. A third court, meanwhile,
rejected an effort to stay the rule's implementation.
"Three courts have now
carefully considered the full range of industry attacks on the DOL's best
interest fiduciary rule, and they have firmly rejected all of them," said
Stephen Hall, the legal director of Better Markets, a non-profit group that
supports the rule.
"The decision issued today
is definitive and sends a message that ought to put a stake through the heart
of industry's efforts to destroy this common-sense rule."
The Labor Department's
"fiduciary" rule requires brokers to put their clients' best
interests first when advising them about individual retirement accounts or
401(k) retirement plans.
It is championed by consumer
advocates and retirement non-profit groups, but has been staunchly opposed by
the financial services sector, which argues it will make retirement advice too
costly and harm lower-income retirees in particular.
The long list of groups that sued
the Labor Department in the Dallas federal court include the U.S. Chamber of
Commerce, the Financial Services Institute, the Financial Services Roundtable,
the Insured Retirement Institute and the Securities Industry and Financial
In a joint statement, those
groups said they disagreed with the judge's ruling and vowed to "pursue
all of our available options to see that this rule is rescinded."
The decision in the Labor
Department's favor came just a few hours after the Justice Department had
petitioned the court to stay issuing a ruling because of the Feb. 3 White House
request to review the rule to determine if it should be revised or scrapped.
Lynn, who was appointed to the
bench by former President Bill Clinton, denied that request shortly after her
ruling was filed.
"The Department of Labor is
continuing to follow the president's memorandum and is exploring options to
delay the applicability date," Labor Department spokeswoman Jillian Rogers
said in a statement.
Sweeping Legal Arguments Rejected
Wednesday's ruling represents a
setback for Gibson Dunn & Crutcher attorney Eugene Scalia, who represented
the business groups and has a strong track record for winning legal challenges
to kill off unwanted Wall Street regulations.
The decision addressed a sweeping
series of legal arguments that Gibson Dunn's attorneys made against the rule,
including claims that the Labor Department had exceeded its legal authority and
that it had violated federal rulemaking procedures by failing to conduct an
adequate cost-benefit analysis to help justify the regulation.
"The court finds the DOL
adequately weighed the monetary and non-monetary costs on the industry of
complying with the rules, against the benefits to consumers," Lynn wrote.
"In doing so, the DOL
conducted a reasonable cost-benefit analysis."
Lynn also rejected other
arguments, including claims that the rule violated free speech rights of
brokers and that the rule violated federal laws governing arbitration.
The case could still be appealed
to a higher court. Meanwhile, there are still several other pending legal
challenges to the rule.
here for the original article from CNBC.