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NAFCU, others warn Senate of 'ruinous' litigation without arbitration
NAFCU, with other community financial institution trade associations, urged senators on Monday to "quickly approve" of H.J. Res. 111, which would nullify the CFPB's recent arbitration rule. The House passed the resolution last month.
"Community financial institutions are consumer- and community-focused institutions that thrive or fail based on their reputation for fair treatment of their members/customers," the letter stated. "Class action suits serve the interests of trial lawyers at the expense of consumers who receive paltry settlements and community financial institutions who face exorbitant legal fees. Class action litigation can be ruinous for a community financial institution and the consumers that rely on them for financial services."
The CFPB's arbitration rule, which prohibits the use of arbitration agreements for the purpose of limiting access to class action litigation, is currently set to take effect Sept. 18. Under the Congressional Review Act, legislators can vote to overrule new federal regulations with a joint resolution of disapproval within 60 legislative days after regulators have submitted the rule to Congress. The House approved of H.R. Res. 111 with a vote of 231-190.
NAFCU has noted its strong support for consumer protections but holds that the arbitration rule, as written, would stand to benefit trial lawyers at the expense of consumers and credit unions.
Monday's joint letter, sent by NAFCU, CUNA and the Independent Community Bankers of America, points out that even the CFPB's own report on the subject found that arbitration offers a better process and outcome for consumers. According to the CFPB report, those consumers involved in class actions received a little more than $32 from lawsuits that took nearly two years to complete, on average. However, in arbitration proceedings, the report found consumers were awarded about $5,400 on average with a five-month time span.
"For community financial institutions, loss of arbitration as a viable option would fuel continued industry consolidation, larger institutions, fewer communities without a dedicated institution and, ultimately, reduced consumer choice," the letter concludes.
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