Republicans argued the rule, which was vigorously opposed by gun-rights and disability groups, would unfairly stigmatize people with disabilities and strip them of their Second Amendment rights without due process.
Federal law already bans the sale of guns to the mentally ill, but doesn't require states to report people with records of mental illness (being committed to a mental hospital, for instance) to the background check system, so they often don't.
President Trump, who campaigned as a defender of gun rights and a friend of the National Rifle Association, is widely expected to sign the measure.
The Obama rule holds that the Social Security Administration must report anyone who requires third-party assistance to manage their Social Security benefits is placed on the National Instant Criminal Background Check System, or NICS. With a Republican ally in the White House, the GOP has moved aggressively to rescind several late Obama administration regulations.
It was implemented by former President Obama after the 2012 Sandy Hook shooting, which saw 20 students and six teachers killed at an elementary school by 20-year-old Adam Lanza.
"The Second Amendment, as a fundamental right, requires the government to carry the burden to show a person has a risky mental illness", Grassley said.
The U.S. Senate has rolled back a rule that blocked people with severe mental health issues from buying a gun. "There is no evidence to support that general idea, and consequently, people being denied constitutional rights without due process", says Grassley. The American Civil Liberties Union has joined with the NRA in fighting the regulation, as has an independent federal agency charged with advising the president and Congress on government policy.
Gun rights groups weren't the only organizations upset about the Obama administration's regulation. "Make no mistake, this vote was really about deepening the gun industry's customer pool, at the expense of those in danger of hurting themselves or others". The House earlier this month voted for the resolution blocking the rule.