Regulation Rollback: CFPB’s Arbitration Rule
Nov 2, 2017 by Paige Terryberry
Yesterday, President Trump signed a bill into law that overturns the harmful Obama-era arbitration rule. This action follows the passage of a Congressional Review Act (CRA) passed by Congress to repeal the rule.
Consumers deserve an affordable and timely option to settle workplace disputes. Arbitration clauses have been proved to provide this—while litigation cases are time consuming, expensive to the individual, and provide a payday to lawyers involved.
The Consumer Financial Protection Bureau’s (CFPB) rule would ban mandatory arbitration clauses for everyday financial products, including credit cards and bank accounts, forcing consumers to pick up the tab should harm arise. This removes customer choice, overburdens the court system, and forces consumers to pay more to solve their disputes. Banning arbitration clauses would benefit class action lawyers, not consumers. AFP supported using the CRA to overturn this rule that restricts arbitration clauses and will harm the consumers it was intending to help.
According to the CFPB’s own study, consumers on average won over $5,000 when using arbitration versus only $32 returned to plaintiffs after using class-action litigation. The study also found that consumers who used arbitration usually received their awards sooner, averaging around two months—compared to class-action litigation that can take up to two years. Class-action lawsuits provide a financial bonus to lawyers with limited benefit to the individual consumer.
Additionally, class-action lawsuits provide a financial bonus to lawyers rather than consumers. In fact, the Treasury Department found that the arbitration ban would generate more than 3,000 additional class action lawsuits in the next five years resulting in $500 million in additional legal defense fees and $330 million in payments to plaintiffs’ lawyers.
We applaud President Trump’s action to sign a resolution repealing the CFPB rule that bans class-action lawsuits in arbitration agreements. Arbitration affords the employee a choice in price to settle their case—as opposed to allowing plaintiff’s class-action attorneys to rip customers off. This money saved from arbitration is passed on to consumers in the form of lower prices. Employers and employees split the cost of arbitration—which incentivizes each to contribute to a healthy and fair work environment.