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Republicans introduce resolutions to nullify CFPB’s ban on arbitration clauses "Credit News 24"

By Stephanie K. Mann, J.D.

Republicans on the Senate Committee on Banking, Housing and Urban Affairs and House Financial Services Committee have introduced resolutions of disapproval to nullify the controversial rule published by the Consumer Financial Protection Bureau which bans mandatory predispute arbitration clauses in consumer financial product contracts if those clauses prevent class actions (see Banking and Finance Law Daily, July 10, 2017).

Senate action. “Members of Congress previously expressed concerns with the proposed version of the rulemaking—concerns that were not addressed in the final rule,” said Banking Committee Chairman Mike Crapo (R-Idaho). “The rule is based on a flawed study that leading scholars have criticized as biased and inadequate, noting that it could leave consumers worse off by removing access to an important dispute resolution tool. By ignoring requests from Congress to reexamine the rule and develop alternatives between the status quo and effectively eliminating arbitration, the CFPB has once again proven a lack of accountability. Given the problems with the study and the Bureau’s failure to address significant concerns, it is not only appropriate but incumbent on Congress to vote to overturn this rule.”

Original co-sponsors of the measure include Sens. John Barrasso (R-Wyo), Roy Blunt (R-Mo), Shelley Moore Capito (R-WV), Thad Cochran (R-Miss), Bob Corker (R-Tenn), Tom Cotton (R-Ark), Ted Cruz (R-Texas), Mike Enzi (R-Wyo), Orrin Hatch (R-Utah), Dean Heller (R-Nev), Johnny Isakson (R-Ga), James Lankford (R-Okla), Jerry Moran (R-Kansas), David Perdue (R-Ga), Mike Rounds (R-SD), Marco Rubio (R-Fla), Ben Sasse (R-Neb), Tim Scott (R-SC), Richard Shelby (R-Ala), Luther Strange (R-Ala), Thom Tillis (R-NC), Patrick Toomey (R-Pa), and Roger Wicker (R-Miss).

Rounds joined in the resolution, calling the arbitration rule “yet another example of the CFPB overstepping its authority to impose burdensome, unnecessary regulations that do more harm than good.” Rounds stated that the rule “would actually cost consumers more in the long run by pushing consumers into class action lawsuits as opposed to arbitration.”
H.J. Res 111. Introduced by Rep. Keith Rothfus (R-Pa), H.J. Res 111 was cosponsored by all 34 Republican members of the Financial Services Committee. According to the Committee’s press release, the bureau conducted a study which shows that consumers who use arbitration actually gain more favorable outcomes than those who hire trial lawyers for class action lawsuits. The average payout for consumers in a class action is $32, while the average trial lawyer receives nearly $1 million.

“The CFPB’s anti-arbitration rule hurts consumers and it’s another example of the problems caused by this rogue and unaccountable agency. We know that consumers get better results through arbitration than through class action lawsuits. Despite the fact that the agency acknowledged this fact in one of its own reports, the bureaucrats at the CFPB have decided they know better. The CFPB's rule eliminates this effective process for consumers, and will punish consumers with decreased access to financial products, increased costs for such products, or both,” said Rothfus.

Democratic response. In response to the resolutions, Rep. Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, blasted Republicans for trying to take away consumers’ rights to be heard in a court of law. According to Waters, the “forced arbitration rule ensures that consumers are not required to sign away their legal rights in order to open a bank account, obtain a credit card, finance a car, or obtain a private student loan.” In addition, Waters emphasized that the development of the rule was a methodical and well-thought-out process, done in consultation with other federal financial regulators.

Senate Banking Committee Ranking member Sherrod Brown (D-Ohio) stated that “overturning the arbitration rule will help banks and payday lenders continue getting away with cheating customers, and I intend to put up one hell of a fight.” According to Brown, “[a]lmost a year after millions of fake accounts were uncovered, Wells Fargo is still using fine print arbitration clauses to cheat those customers out of the justice they deserve.”

Industry applause. The American Bankers Association has applauded the congressional resolutions for putting consumers first and taking the first steps to overturn the CFPB’s “misguided” arbitration rule. “In reality, the vast majority of disputes get resolved quickly and amicably without the need for arbitration or legal action,” said Rob Nichols, ABA president and CEO. “If arbitration disappears, the Bureau will force consumers to navigate an already overcrowded legal system where the only winners will be trial lawyers. We think our customers deserve better, and we urge lawmakers in both chambers of Congress to overturn this anti-consumer rule as soon as possible.”

Richard Hunt, President and CEO of the Consumer Bankers Association (CBA), released a statement in favor of the resolutions. “Arbitration has long provided a faster, more cost-effective, and higher recovery means of addressing consumer disputes than class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit. The real benefactors of the CFPB’s arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit.”Industry associations oppose rollback. In a statement, the National Consumer Law Center stated that barring forced arbitration clauses in contracts with class action bans allows individuals to join together with other victims of fraud and wrongdoing to hold violators accountable. Lauren Saunders, the center’s associate director, stated that “Wells Fargo used a forced arbitration clause in their contracts to hide widespread wrongdoing for years from the public by sidestepping our justice system,” said Saunders.

Center for Responsible Lending Senior Policy Counsel Melissa Stegman released a statement praising the bureau’s rule to restore the ability of consumers to “join together and have their day in court.” Stegman stated that forced arbitration clauses “block consumers’ access to the courts and force consumers into an arbitration process rigged in favor of the company.” She stated that “the Wells Fargo scandal highlights the real harm of forced arbitration clauses, as customers who attempted to bring class action lawsuits against the bank over phony accounts were blocked from the court.”

Allied Progress executive director Karl Frisch called the bureau’s arbitration rule a “major victory for all Americans,” and said the companion bills “puts the power back in the hands of Wall Street and the big banks—essentially establishing secret arbitration courts where big business has the advantage and consumers hardly stand a chance.” Americans for Financial Reform also opposes efforts to roll back the bureau’s rule, with its executive director Lisa Donner stating that these efforts would “strip consumers of their constitutional right to hold lawbreakers accountable in court.”

Michael Best, Director of Advocacy Outreach at Consumer Federation of America, issued a statement that the bureau’s rule “would restore to consumers the choice to band together to seek refunds when their bank breaks the law. The financial industry claims that arbitration is superior to pursuing claims in court. If true, then consumers will choose this option—they shouldn’t be forced into it with fine print.”

“Repealing the CFPB’s arbitration rule is payback for the more than $100 million in campaign contributions Republicans have taken from the financial industry,” said Robert Weissman, president of Public Citizen, referring to analysis the group released asserting that the financial industry has given more than $100 million in campaign contributions to Republicans in the U.S. Senate.
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