The Consumer Financial Protection Bureau announced a new rule in July that heavily restricts arbitration clauses, and opens companies to more frivolous class action lawsuits. This new rule, passed under the guise of consumer protection, is not just anti-consumer — it will make the elite class of trial lawyers even richer off the backs of consumers.
In typical fashion, Democrats like Nancy Pelosi and Elizabeth Warren claim that Republicans are anti-consumer and are only on the side of big banks. Maxine Waters, the Ranking Democrat on the House Financial Services Committee, went so far as to say that “it is outrageous that Republicans are trying to nullify the rule to the detriment of consumers. Republicans should think twice before taking away consumers’ rights to be heard in a court of law.”
Nothing could be further from the truth.
Under this new rule, the only people who will truly be “heard” in a court of law are the already powerful trial lawyers who have made billions of dollars from class action lawsuits. Republicans are against this bill because it not only hurts consumers by passing on higher costs to them, it empowers lawyers to line their pockets with millions of dollars while class action participants are left to pick up the scraps.
Mandatory Arbitration clauses are beneficial to consumers because they give them a low-cost alternative to resolve disputes with lenders and banks. Consider this: The CFPB’s own study on arbitration concluded that on average, consumers receive more than $5000 through arbitration hearings, as opposed to roughly $32 through class-action litigation — if they even have the chance to get anything at all.
Litigating class action lawsuits has become an entire industry unto itself. According to Forbes, “for practical purposes, counsel for plaintiffs (and for defendants) are frequently the only real beneficiaries of the class actions. When consumer class actions do settle, lawyers usually negotiate a deal that pays them and their named plaintiffs well, but delivers little to nothing to their other clients.”
It’s no wonder that we see commercials daily advertising class action lawsuits. The only reason law firms can afford millions in national TV advertising is because they make even more off of the lawsuits, and end up passing the litigation costs off to the consumers.
Luckily, under the Congressional Review Act, a bipartisan bill signed by President Clinton in 1996, Congress has the power to nullify rulings by government agencies within 60 days of the rule’s passage. It even goes one step further, and prevents any government agency from issuing the rule again. This law has already been used to retract several Obama-era regulations, and should be used again in this case to protect consumers.
The House recently voted 231-190 to repeal the controversial ruling, with the bill currently awaiting a vote in the Senate. President Trump has indicated his strong support for the bill, and has promised to sign it once passed by the Senate.
Like all government agencies, the CFPB has morphed from its original intention of protecting consumers to becoming an agency that fights for powerful interests under the guise of consumer protection. Restricting the powers of the CFPB to regulate arbitration clauses isn’t just smart policy, it’s a consumer-first policy. It’s critical that the Senate passes this bill, and President Trump signs it, for the good of the American people.