Treasury study: CFPB's arbitration rule comes with "extraordinary costs"
A Treasury Department report released Monday found that the CFPB's arbitration rule will come with "extraordinary costs," including creating more than 3,000 additional class action lawsuits over the next five years and shifting $330 million to plaintiffs' lawyers.
The report examines the analysis the CFPB used to prohibit mandatory arbitration clauses in its rulemaking and outlines important limitations to the data behind the bureau's rule. The report also explains that the CFPB did not appropriately weigh whether prohibiting arbitration clauses would serve public interest.
The Treasury report also found:
- the rule will require more than $500 million in additional legal defense fees;
- the majority of class action lawsuits do not deliver relief to the class; and
- the CFPB did not show that its rule will increase compliance with federal consumer financial laws.
NAFCU has expressed similar concerns over the CFPB's rulemaking. In its comment letter, NAFCU argued that the conclusions derived from the CFPB's final arbitration study are unfounded and do not support the proposal and the rule would have several unintended consequences for credit unions and their members, including increased costs.
Congress has also made efforts to overturn the rule. The House, in July, passed a resolution expressing disapproval of the final rulemaking. 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 Senate has a few weeks left to vote on the resolution, although the rule technically became effective Sept. 18.
Compliance with this rule is required for pre-dispute arbitration agreements entered into on or after March 19, 2018.
NAFCU has told the CFPB that while it strongly supports consumer protections, credit unions should not have been included in this rulemaking as they are not the bad actors the rule is meant to target. The association also wants credit unions to have access to various forms of dispute resolution and told the CFPB that the rule's reporting requirements could lead to a rise in frivolous lawsuits.
Accounts Operations Consumer Lending
Credit Unions, Board of Directors, Web/Tech, Organizational Change, Merger
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