By Thomas G. Wolfe, J.D.
Recently, banking and business trade groups from the financial services industry and consumer advocacy groups have presented very different opinions about the merits of a proposed spending bill rider seeking a new arbitration study by the Consumer Financial Protection Bureau.
In terms of a backdrop, the Dodd-Frank Act required the CFPB to conduct a study of arbitration clauses in consumer financial contracts before the federal bureau drafts any rules on the subject. Having completed its arbitration study, the CFPB has now begun the process of drafting a rule pertaining to arbitration clauses and has communicated that it is inclined to restrict class action waivers in arbitration clauses.
Consequently, in their Dec. 1, 2015, letter to members of the House and Senate committees on appropriations, a number of banking and business associations and other trade groups have expressed their support for a spending bill rider that would require the CFPB to “conduct a fair, comprehensive study before adopting a rule that would restrict arbitration and open the door widely to abusive class actions that benefit lawyers and harm consumers.” Accordingly, the trade groups’ letter urges support for the Womack-Graves amendment to the Fiscal Year 2016 Financial Services and General Government Appropriations bill (H.R. 2995).
The letter to the congressional committees was sent jointly by the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Data Industry Association, Consumer Mortgage Coalition, Credit Union National Association, CTIA—The Wireless Association, Electronic Transactions Association, Financial Services Roundtable, National Association of Independent Housing Professionals, Real Estate Services Providers Council, Inc., Small Business & Entrepreneurship Council, U.S. Chamber Institute for Legal Reform, and the U.S. Chamber of Commerce.
In contrast, the Americans for Financial Reform, National Association of Consumer Advocates, National Consumer Law Center, and Public Citizen are jointly urging Congress to “resist the temptation to give in to powerful corporate lobbyists that seek to use the budget process” to obstruct or discard the rulemaking efforts of the CFPB in connection with arbitration reforms. Accordingly, in their Dec. 2, 2015, release, the consumer advocacy groups caution legislators that the industry trade groups have been encouraging members of Congress to “add a harmful rider to the contentious spending bills that would disregard the CFPB’s multi-year, data-driven study and analysis on the use of forced arbitration clauses in the fine print of financial contracts.”
What are the core concerns of the respective groups? On one hand, the industry trade groups state in their joint letter that more than 80 members of Congress previously sent a letter to the CFPB contending that the CFPB’s arbitration study process was “opaque, incomplete, and unfair.” According to the trade groups, the CFPB’s arbitration study “failed to address the most important question—how consumers would be able to resolve disputes cheaply and speedily if arbitration is limited and consumers are left to the mercy of the plaintiffs’ class action trial lawyers and the increasingly overcrowded and complex judicial system.”
Consequently, the trade groups assert that the Womack-Graves amendment “would require the CFPB to go back, before enacting any rule, and undertake the kind of study it should have undertaken in the first place.” The letter notes that, upon completion of the proposed new CFPB study, the Womack-Graves amendment would authorize the CFPB to regulate arbitration clauses “as long as it demonstrates, based on empirical evidence, that the benefits to consumers would not be outweighed by the costs to consumers.”
On the other hand, the consumer advocacy groups offer a starkly different perspective. Outlining their concerns in the Dec. 2 release, the consumer groups contend that an “industry-favored rider” would obstruct the CFPB’s efforts, “forcing the CFPB to re-do the [arbitration] study, wasting valuable taxpayer funds, and denying much-needed consumer protections from being implemented.” Further, the groups maintain that an industry-favored rider promoting forced arbitration clauses would harm consumers, shield financial institutions from accountability for their misconduct, and encourage Wall Street to engage in exploitive, unfair practices.
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