US PIRG Statement on the CFPB's New Arbitration Rule

“The Big Print Giveth and The Small Print Taketh Away”

These small-print clauses in boilerplate, take-it-or-leave-it contracts have for too long prevented consumers who individually could not afford a lawyer from banding together in class actions when, collectively, the wrongdoing costs them millions of dollars or more.

Mandatory arbitration clauses "allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up", Cordray said in a news release.

"We would like to work with you and your staff to address the potential safety and soundness implications of the CFPB's arbitration proposal".

The CFPB's new rule ensures consumers' right to participate in class action lawsuits.

Sen. Tom CottonTom CottonLawmakers press Sessions over online gambling GOP senator targets consumer bureau arbitration rule for repeal Granting NSA permanent bulk surveillance authority would be a mistake MORE (R-Ark.) said Tuesday morning he would seek the repeal of a new Consumer Financial Protection Bureau (CFPB) rule cracking down on arbitration clauses in customer contracts with financial firms. Financial companies will still be able to force individuals to settle disputes through arbitration, but those kinds of cases are far less common than class-action cases.

On March 10, 2015 insideARM wrote about the CFPB study finding that mandatory arbitration agreements limit relief for consumers. This ultimately will lead to less choice and freedom for American consumers. The study showed that over 34 million consumers received payments, and that $1 billion was paid out to harmed consumers over the five-year period studied.

The rule becomes effective 60-days after publication in the Federal Register and applies to contracts entered into more than 180-days thereafter. But that it will ever go into effect at all remains in question - Congress could block it, and so could the courts. If the regulation falls victim to the Congressional Review Act, the CFPB would be barred from moving forward in the future with a "substantially similar" rule unless it receives support from a new statute.

"W$3 e remain dubious that Congress will permit the rule to take effect", said Cowen analyst Jaret Seiberg in a note on Monday after the rule was announced, adding that he expects Congress to use the CRA to void the arbitration rule.

The CFPB did not share the final rule with him ahead of the announcement, according to an Office of the Comptroller of the Currency spokesman.

Industry groups said it was misguided.

"The rule should be thoroughly rejected by Congress", said Republican Congressman Jeb Hensarling of Texas, the CFPB's biggest foe in Congress and chairman of the House Financial Services Committee.

"People still need to wary and need to be careful of what they're signing", says Lauren Saunders, associate director of National Consumer Law Center. We have closely followed the Dodd-Frank rules, including this final rule.

Boltansky gives the CFPB's arbitration rule slightly less than a 50% chance of being reversed via the CRA.

"The concern we've had all along is it potentially opens up the door to costly litigation", said Jon Skarin, senior vice president at the Massachusetts Bankers Association, who deals with regulatory issues. Some 75% of consumers don't know whether or not their credit card agreement contains an arbitration clause, Cordray said.

Our new rule will restore the ability of groups of people to file or join group lawsuits.

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