Business Groups File Lawsuit Against CFPB’s Arbitration Rule

News
October 2, 2017

WASHINGTON—A coalition representing financial companies sued the Consumer Financial Protection Bureau Friday, challenging a new rule making it easier for consumers to band together to sue over complaints about bank accounts, credit cards and payday loans.

The groups—a range of finance trade groups and the U.S. Chamber of Commerce—are fighting a rule released in July barring fine-print requirements in financial contracts for customers to use arbitration, rather than the U.S. legal system, to resolve complaints. The lawsuit comes as Senate Republicans are scrambling for the 50 votes they need to overturn the CFPB rule with legislation.

The suit was filed in a U.S. federal court in Texas. The American Bankers Association, American Financial Services Association, Consumer Bankers Association and Financial Services Roundtable joined the Chamber in filing the lawsuit.

“We are filing this challenge to ensure all legal remedies are utilized to preserve arbitration for consumers,” the groups said in a written statement. “Ultimately, we hope this legal challenge will compel the CFPB to take this misguided rule back to the drawing board.”

A CFPB spokesman declined to comment.

Financial firms are opposed to the CFPB rule and have stressed that they believe arbitration is helpful for consumers. Proponents say it will ensure that consumers have access to the courts, which will serve as a deterrent against mistreatment of customers by banks.

The business groups said they are challenging the “constitutionality and legality” of the rule because of alleged flaws in how the CFPB justified making it. They also claim the CFPB’s structure is unconstitutional—raising a question that is pending in separate litigation in a Washington, D.C.-based federal appeals court—and say the bureau didn’t consider the possible benefits of arbitration when developing the rule.

Senate Republicans want to use a legislative tool known as the Congressional Review Act, which allows Congress to overturn a newly issued regulation with majority votes in the House and Senate. The House voted 231-190 to overturn the rule in July. The Senate must act by early November.

No Democrats are likely to back the effort. Republicans, with their slim majority, can’t lose more than two GOP votes to get the measure through the Senate. Several Republican senators have expressed reservations about overturning the rule, worried that they may be portrayed as siding with banks and against consumers.

Sen. Lindsey Graham (R., S.C.), a former trial lawyer, has said he opposed the resolution, calling arbitration  is “a windfall for the companies in terms of how you settle their cheating.” Sens. John Kennedy (R., La.) and Susan Collins (R., Maine), believed to be possible opponents, have declined to say how they would vote.

Acting Comptroller of the Currency Keith Noreika, a Trump administration official who is opposed to the CFPB, on Thursday resumed his attack on the rule. The CFPB is headed by Director Richard Cordray, an Obama appointee whose term is up July 2018.