It didn’t take long for Congressional Republicans to pounce on the CFPB’s final rule on arbitration agreements, which the agency released on July 10.
House Financial Services Committee Chairman Jeb Hensarling immediately said he would support use of the Congressional Review Act to dismantle the rule, while Senator Tom Cotton (Ark.) already has drafted a CRA resolution.
The CFPB rule bans mandatory arbitration clauses in contracts, essentially giving consumers the right to join class action lawsuits against financial services providers. Proponents of the rule, including the CFPB, say it will discourage illegal activity and ensure consumers can “have their day in court,” but critics say arbitration is better for consumers because it’s faster, cheaper and leads to higher individual payouts. Critics also point to the added costs and liability associated with potential lawsuits.
Rep. Hensarling (R-Texas) issued a statement on July 10 predicting that the “bureaucratic rule will harm American consumers but thrill class action trial attorneys.”
In the proposed arbitration rule that was finalized, the CFPB estimates that the 53,000 financial services companies that currently use arbitration agreements will now have to spend between $2.62 billion and $5.23 billion over the next five years to defend an additional 6,042 class actions, according to an alert from Ballard Spahr LLP.
The CFPB notes, however, that the added costs when spread across the millions of accounts in the financial services marketing amount to less than one dollar per account per year.
Rep. Hensarling went on to criticize CFPB Director Richard Cordray for “ignoring” a prior request by Acting Comptroller of the Currency, Keith A. Noreika, that he work with the OCC to resolve its potential safety and soundness concerns related to the rule.
“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” Hensarling said.
A day later Senator Tom Cotton (R-Ark.) accused the agency of going “rogue again.’ “The Bureau’s new rule on arbitration clauses ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests. This morning I’ve started the process of rescinding this rule using the Congressional Review Act. The last thing Americans need is more anti-business regulation that will prompt frivolous lawsuits while hurting consumers.”
The senator’s office confirmed that he has drafted a CRA resolution to repeal the rule and is working with Sen. Mike Crapo (R-Idaho), chairman of the Senate Banking Committee, to introduce it soon.
Prior to the Trump administration, CRA, a 1996 law that enables Congress to remove rules within 60 days of their publication in the Federal Register with simple majorities in both houses, had only been used once. Since Trump took office, the CRA has been used to roll back more than a dozen regulations.
Democrats widely support the arbitration rule and some reports suggest that it will be a talking point on the campaign trail if Republicans are successful in repealing the rule through CRA.
“This CFPB rule will allow working families to hold big banks accountable when they’re cheated and help discourage the kinds of surprise fees that consumers hate,” said Sen. Elizabeth Warren (D-Mass.). “In the upcoming months, the U.S. Chamber of Commerce and other big business lobbying groups will go all out to get Republicans in Congress to reverse this rule, so Republicans will have to decide whether to defend the interests of their constituents or shield a handful of wealthy donors from accountability.”
- CFPB Issues Final Arbitration Rule
- Rep. Hensarling Threatens Contempt for Cordray in Arbitration Battle
- Embattled Cordray under Fire at House Committee Hearing