After two years of waiting, the Consumer Financial Protection Bureau (CFPB) released its anti-arbitration rule last week.
The final rule, based upon a flawed 2015 study conducted by the agency, prohibits companies from utilizing mandatory arbitration clauses, and, in turn, forcing disputes to be subject to class-action lawsuits. This path results in less relief for consumers and slower resolution.
In effect, the CFPB just gave a huge gift to the plaintiffs’ bar, while forcing consumers down a longer and less lucrative path.
In his prepared remarks, CFPB Director Richard Cordray said:
Based on the study Congress authorized the Bureau to perform, [this] is the right answer to protect consumers and serve the public interest.
This couldn’t be further from the truth. The rule ignores the practical benefits of arbitration, as compared to the court system, for addressing the most common types of cases.
U.S. Chamber Institute for Legal Reform (ILR) President Lisa Rickard and Center for Capital Markers Competitiveness (CCMC) President and CEO David Hirschmann released a statement following the rule’s release, saying:
The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue.
They noted that the rule disregards the will of Congress, the White House, the courts, and the American people. It effectively removes an option— arbitration— that is affordable and manageable for consumers. Prohibiting it is unnecessary and costly.
“While arbitration is faster and cheaper for consumers, the Bureau chose to release this rule, which will eliminate the option of arbitration for most consumers,” David Hirschmann, president of the Chamber’s Center for Capital Markets Competitiveness, and Lisa Rickard, president of the Chamber’s Institute for Legal Reform, said in a joint statement. “Arbitration has been common practice for decades and provides consumers, employees, and other injured parties with accessible and fair procedures for obtaining redress for claims that cannot be vindicated in court.”
The Chamber hosted a discussion with Senator Tom Cotton (R-AR) on the rule, a conversation that touched upon its implications for the businesses community and various methods to roll it back.
In his remarks, Senator Cotton noted that Republicans in the House and Senate intend to overturn the arbitration rule before the chambers adjourn for the August recess.
Bloomberg quoted Cotton, writing:
“I think we can get this done,” Cotton said at the forum held by the U.S. Chamber of Commerce, which opposes the arbitration rule. “The clock is starting now.”
We couldn’t have said it better ourselves.