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The U.S. Chamber of Commerce has thrown its support behind a lawsuit aiming to block the Department of Labor's (DOL) latest fiduciary rule, which significantly broadens the scope of who is considered a fiduciary under federal benefits law. The Chamber filed an amicus brief in a Texas federal court on Friday, advocating for a preliminary injunction to halt the implementation of the rule, citing increased costs for consumers and a potential rise in litigation risks.

Legal Arguments Against the DOL's Fiduciary Expansion

In the brief, the Chamber argues that the DOL's rule, finalized in late April, bypasses a traditional test set by Congress in 1975, under the Employee Retirement Income Security Act (ERISA), to determine fiduciary status. The rule forcibly categorizes many brokers and agents as fiduciaries, a significant shift from their previous non-fiduciary roles. The Chamber highlights that this redefinition will lead to higher compliance costs and potentially expensive class-action lawsuits against financial service providers.

The Chamber also points out that the rule contradicts a precedent set by the Fifth Circuit, which in a past decision emphasized that fee-based investment advice should involve a substantial, ongoing relationship between adviser and client. The DOL's current definition includes even "one-time advice," which the Chamber contends is an overreach of the DOL’s authority.

Financial and Legal Implications Highlighted by the Chamber

According to the Chamber, the enforcement of the fiduciary rule will force broker-dealers to modify their transaction-based advice models to fit the new regulatory framework, resulting in increased costs that would ultimately be passed on to consumers. Furthermore, the new fiduciary status exposes these professionals to a heightened risk of litigation, as fiduciaries are frequently sued under ERISA for alleged failures in their duties.

Chamber Backs Insurers' Suit To Block DOL Fiduciary Rule : Overlap with State and Other Federal Regulations

The Chamber also argues that the new rule is redundant, given that over 40 states have adopted regulations formulated by the National Association of Insurance Commissioners, which mandate that insurance agents act in the best interests of consumers when recommending annuities. This overlap, the Chamber suggests, makes the DOL’s regulations unnecessary and an overstep of its regulatory authority.

Chamber Backs Insurers' Suit To Block DOL Fiduciary Rule : Ongoing Legal Challenge

The lawsuit against the DOL was initiated in May by various entities, including the Federation of Americans for Consumer Choice Inc., TX Titan Group LLC, and ProVision Brokerage LLC, alongside individual insurance agents. These plaintiffs claim that the DOL has exceeded its statutory authority under ERISA, the Tax Code, and the Administrative Procedure Act, making the regulations arbitrary and capricious.

Representation and Responses

The Chamber is represented by a coalition of attorneys from Goodwin Procter LLP, the U.S. Chamber Litigation Center, and Greenberg Traurig LLP. On the other side, the DOL is represented by Alexander N. Ely of the U.S. Department of Justice. While the Department of Justice has declined to comment, representatives of the Chamber and the insurance groups have yet to respond to requests for comment.