How repossession practices could improve based on latest CFPB report


Hudson Cook partner Allen Denson read through the auto-finance portion of the latest Supervisory Highlights shared by the Consumer Financial Protection Bureau and immediately thought of another credit segment. The CFPB’s report described problems bureau representatives found with vehicles being repossessed after contract holders evidently made catch-up payments or entered into agreements to avoid repossession.

In the report, the CFPB acknowledged that contract holders give creditors a security interest in their vehicles. When a borrower defaults, the CFPB said a creditor can exercise its rights under the contract and repossess the secured vehicle.

The bureau also pointed out that servicers may have formal extension agreements that allow borrowers to forbear payments for a certain period of time or may cancel a repossession order once a borrower makes a payment.

“In one or more recent exams, examiners found that one or more entities were repossessing vehicles after the repossession was supposed to be cancelled,” the CFPB said in the report. “In these instances, the servicer(s) wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered an agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that the repossession had been cancelled.

“Bureau examiners concluded that it was an unfair practice to repossess vehicles where borrowers had brought the account current, entered an agreement with the servicer to avoid repossession, or made a payment sufficient to stop the repossession, where reasonably practicable given the timing of the borrower’s action,” the report continued.

Upon reviewing that update, Denson arrived at this assessment.

“The problems with repossession highlighted in the most-recent version of the CFPB’s Supervisory Highlights are reminiscent of financial regulators concerns about alleged wrongful foreclosures during the mortgage crises,” Denson said in a message to SubPrime Auto Finance News. “There, mortgage servicers on occasion foreclosed on consumers who were involved in loan modification or workout pipelines. 

“The same circumstances appear to apply here: Consumers may have had their vehicles repossessed while they were part of a workout agreement,” continued Denson, who is set to be a part of a regulatory discussion during Repo Con at Used Car Week, which begins on Nov. 13 in Palm Springs, Calif.

After the CFPB discovered what the regulator deemed to be an improper practice, the bureau’s report shared what happened next.

“Supervision directed the servicer(s) to stop the practice,” the report said. “In response to our examiners’ findings, the servicer(s) informed supervision that the affected consumers were refunded the repossession fees.

“The servicer(s) also implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose,” the report added.

Upon seeing how the CFPB handled the matter, Denson closed with an upbeat recommendation of how the auto finance industry can move forward to avoid these problems down the road.

“The Supervisory Highlights, while noting the problem, also seem to contain a proposed solution,” Denson said. “Servicers should develop methods to ensure real-time or near real time status updates of accounts before repossession and should develop procedures whereby repossession agents confirm that a repossession should occur immediately prior to the event. 

“In the case of the servicer highlighted in Supervisory Highlights, a ‘high-tech’ solution in the form of an app was adopted,” he continued. “However, services could adopt more manual procedures as well. The key is having open information channels and checks against alleged wrongful repossessions.”

Cordray sticks with CFPB message during Labor Day speech in Ohio


If Richard Cordray wanted to make a triumphant announcement that he was running for governor in Ohio, the Consumer Financial Protection Bureau director passed on the opportunity when he gave a speech on Monday during the Cincinnati AFL-CIO Labor Day Picnic.

The prepared remarks Cordray shared didn’t hint at gubernatorial aspirations in the Buckeye State, where he already has been treasurer and attorney general. Instead Cordray focused on what’s been accomplished by the bureau, including $12 billion in restitution to more than 30 million consumers during the past six years.

“We deal with common, everyday products like credit cards, loans for cars and trucks, home mortgages and bank accounts,” Cordray told the gathering of union members. “We help people know before they owe by arming them with information they need to make smart decisions about their money. We put in place protections against predatory practices. We hold companies accountable for following the law, and we come down hard on them when they don’t.

“People from all over the country thank us all the time for getting results, and they often seem surprised to find that we are doing this work on their behalf,” he added.

Before the holiday weekend, lawmakers and industry leaders sought confirmation about whether Cordray would be concentrating his time and effort in Ohio or as the head of the CFPB for which his term runs for another year.

At least from what Cordray said publicly in this city near the Ohio River, it seems he plans to continue to steer the CFPB ship.

“What I have learned from my time leading the Consumer Bureau is this: Our willingness to stand up for what is right, regardless of the obstacles, can make a real difference,” Cordray said. “If we do not push back on the forces that press people down, we are allowing America’s promises to go unfulfilled. We need to give voice to these concerns, and we need to join together to help each other rekindle the hope, the enthusiasm and the willingness to find and make our own opportunities: to try, to fail, to try again, and to keep picking each other up because we just know that something is out there and we can figure out a way to find it.

“But to do that, we need a system that works for all of us, not just those at the very top,” he went on to say. “We need to be able to see that wherever we start in life, we can advance through our own merit and hard work. We need a marketplace, and a justice system, and other key pieces of our society to operate more effectively and truly reflect the principle that every one of us counts.”

Calls intensify for Cordray to reveal political aspirations


The chairman of the House Financial Services Committee wants a definitive answer to a question that both he and Consumer Bankers Association president and chief executive officer Richard Hunt have been asking for some time: Is Consumer Financial Protection Bureau director Richard Cordray departing the regulator to run for governor in Ohio?

Rep. Jeb Hensarling, the committee chair and Texas Republican who often has clashed with Cordray during hearings, delivered a letter to the CFPB director asking for written confirmation by today about any political aspirations in the Buckeye State. The letter, made available here by the National Association of Federally-Insured Credit Unions, asked for clarification as the CFPB is compiling a new rule associated with small-dollar lending.

Hensarling’s inquiries to Cordray included:

—Categorical denial that political considerations have informed any aspect of decisions, orders and communications relating to this rule

—Assurance that all records relating to this rulemaking will be preserved

—Confirmation that Cordray intends to serve his full statutory term as bureau director, or, if he does not intend to serve the full term, confirmation of the date on which he intends to resign from office

Hensarling’s letter referenced multiple media reports originating out of Ohio where sources close to Cordray hinted at his governorship aspirations. The reports seemed to exacerbate Hensarling’s inquiry in light of the CFPB’s latest rule-making agenda.

“Simply put, there is no valid legal basis for accelerating a federal rulemaking to satisfy an arbitrary deadline necessitated by election dates established under Ohio law. If this is the case, it undoubtedly opens the bureau’s rule up to legal challenge,” Hensarling wrote.

Meanwhile, Hunt also raised the issue upon hearing word of Cordray’s upcoming schedule. Hunt noted that Cordray is scheduled to speak at the Ohio Land Bank Conference in Cleveland on Sept. 12. He also mentioned that Cordray is rumored to appear at an Ohio AFL-CIO Labor Day picnic.

Hunt asked in a blog post, “Could these appearances have implications for a potential run for office?”

Hunt continued with, “It is well past time director Richard Cordray clarify his intentions to run for public office as the speculation has become a distraction and now casts a shadow over the impartiality of the CFPB. We need to have stability at the CFPB.

"The current limbo — will he or won't he? — is just the latest reason why a Senate-confirmed, bipartisan commission must be established at the CFPB. A diverse group of experts directing and formulating agency policy — not a single director — would ensure consumers receive a balanced, deliberative and thoughtful approach to regulation,” Hunt went on to say.

“Furthermore, director Cordray has not in over two years named a permanent deputy director to be second in command. The markets and consumers demand stability, and announcing his intentions is just the right thing to do,” Hunt added.

Pennsylvania creates CFPB-like unit within AG’s office

CARY, N.C. - 

While some lawmakers on Capitol Hill continue to work toward a major restructuring or perhaps even a complete dismantling of the Consumer Financial Protection Bureau, one of the leaders of the American Recovery Association cautioned the industry about developments this summer in Pennsylvania by the attorney general to establish a division similar to this federal agency.

In fact, the individual appointed to lead this unit within the Keystone State’s attorney general’s office actually was the fourth employee ever to come aboard at the CFPB.

To recap, back in July, Pennsylvania attorney general Josh Shapiro created what he called a consumer financial protection unit. Leading this operation is Nicholas Smyth, who before joining the CFPB was part of a team at the U.S. Treasury Department that drafted and revised the CFPB’s enabling act, the Consumer Financial Protection Act of 2010 (Title X of the Dodd-Frank Act).

Smyth brings significant expertise in auto finance to this post in Pennsylvania. At the CFPB, Smyth led the investigation of Drivetime Automotive Group, which resulted in an $8 million settlement related to allegations associated with what the bureau deemed to be harassing debt collection calls and providing inaccurate credit information to credit reporting agencies.

“Protecting the public from financial scams is a key priority of mine, and Nick Smyth will help us expand our capacity to bring complex cases against financial companies that try to rip off Pennsylvanians,” Shapiro said.

“I am honored to join the attorney general’s terrific consumer protection team,” Smyth added. “The Consumer Protection Bureau saves Pennsylvania families millions of dollars each year, and I am excited to contribute to this great work.”

All of the developments caught the attention of David Kennedy, who is vice president and director of compliance at the American Recovery Association. Kennedy, who also is the chief executive officer of First Credit Resources, cautioned how this new enforcement unit could impact repossession agencies and other third-party providers that participate in recoveries.

“A lot of you thought you would never see an agent from the CFPB or a CFPB-type agency because of your size. Well, I can assure you now, if you are located in Pennsylvania, your chances just went from zero to ‘see you next year,’ maybe even late this year,” Kennedy said in a message distributed by ARA and obtained by SubPrime Auto Finance News.

“We all know how this is going to go,” he continued. “When one state does it, the other states will watch to gauge the success and then jump on the band wagon. All your small clients who have not placed the same importance on compliance as ARA has done and have continued to use off-duty police, constables, sheriffs, or just unlicensed repossessors, have much to fear.

“Our loyal members who have taken advantage of the ARA webinars and compliance testing, have instituted the policies and procedures we have been going over for at least three years, have taught their street-level employees the information, and have created the culture of compliance that we as an association have been constantly and consistently talking about, have nothing to fear,” Kennedy went on to say.

For more details about compliance and other operational resources at ARA, go to

Latest House report questions what CFPB deems ‘burdensome’


Another scathing report originating out of the U.S. House Financial Services Committee again chastised the Consumer Financial Protection Bureau while reminding the agency to consider what it’s like for finance companies that comply with the CFPB’s civil investigation demands, also known as CIDs.

Majority members charged CFPB director Richard Cordray for contempt of Congress due to his default in providing requested information associated with the bureau’s new arbitration rule set to go into effect on Sept. 18. The report claims lawmakers’ requests have been “burdensome” as the agency has provided thousands of pages of documents.

Republican lawmakers on the committee replied back in part charging that the CFPB now has a sense of the ordeal finance companies face.

“As part of its rules relating to investigations the CFPB can issue CIDs, which are similar to a subpoena in that they are a form of legal compulsion,” the report said. “The CFPB’s rules allow a recipient of a CID to petition the director to modify or set aside the CID. The rules require that these petitions ‘shall set forth all factual and legal objections to the civil investigative demand, including all appropriate arguments, affidavits, and other supporting documentation.’

“Director Cordray himself rules on these petitions. What is conspicuous about the CFPB’s claims of burden is that in director Cordray’s rulings he holds the recipients of the CFPB’s CIDs to the same or higher standards than the committee applies here — a standard that requires a detailed explanation of burden,” the report continued.

“Director Cordray routinely denies lengthy petitions alleging that CFPB CIDs are burdensome, and yet in response to the (requests) he has provided only limited data,” the report went on to say.

The lawmakers’ report goes on to mention that the CFPB’s production of 2,362 pages of records (or even potential review of 10,000 discrete records) “pales in comparison to what the CFPB regularly requires of its CID recipients.”

The report also noted, “… in any event, the CFPB has never suggested that it does not understand what has been called for; it simply deems the articulated interest too broad and hence burdensome.”

This 36-page report, which is available here, arrived a little more than a week after the House approved resolution leveraging authority provided under the Congressional Review Act (CRA) to stop the bureau’s final rule prohibiting the use of class action waivers in arbitration clauses.

In order for the rule to be stopped, the Senate must approve a similar action, but that chamber has yet to take a vote on its proposal.

Credit Acceptance has long-range hopes for sales force


As the company acknowledged an inquiry from the Consumer Financial Protection Bureau, Credit Acceptance leadership discussed its sales force during a good portion of its latest conference call with investment analysts.

Credit Acceptance shared as a part of its second-quarter finance report that the company expanded its sales team by “roughly” 20 percent year-over-year in an effort to broaden its active dealer network, which stood at 7,635 as of June 30. On the same date a year earlier, the figure stood at 7,181.

The company classifies active dealers as ones who have received funding for at least one contract during the quarter.

Chief executive officer Brett Roberts described the volume of active dealers joining the company’s network as “OK,” acknowledging the 910 stores to sign up during the second quarter marked a 13.9-percent improvement versus the same quarter a year ago.

“But sequentially we had a decline in active dealers,” Roberts said. “So I guess the goal, obviously, is to sign up more dealers than we’re losing. We didn’t do that in Q2, but we hope to do that in the future.”

The company also noted its dealer attrition rate deteriorated slightly in Q2, rising to 21.5 percent. A year earlier, the rate stood at 17.5 percent.

Credit Acceptance defines attrition according to the following formula: Decrease in consumer loan unit volume from dealers who have received funding for at least one dealer loan or purchased loan during the comparable period of the prior year but did not receive funding for any dealer loans or purchased loans during the current period divided by prior year comparable period consumer loan unit volume.

Roberts pointed out that Credit Acceptance’s current sales team is double the size of what it had been a few years ago, and the company is expecting to “increase it a little bit more.”

Roberts told conference call participants, “I think if you look at the last time we increased the sales force, it took us about two years to roughly double the sales force, and really, almost three years before productivity got to where it was before we started the expansion. So it was overall about a five-year process to double the sales force.

“We’re not trying to double it this time, and hopefully, we’ve learned a little bit from the first time. But it’s still more of a long-term driver than a short-term driver,” he continued.

With a larger team comes more expenses. Credit Acceptance reported for Q2 that its 11.9 percent or $6.5 million increase in operating expenses stemmed from an increase in salaries and wages expense of $2.6 million, or 8.6 percent. This was primarily related to our servicing function as a result of an increase in the number of team members along with an increase in sales and marketing expense of $2.5 million, or 21.0 percent, due to an increase in the size of its sales force.

Roberts explained that having a robust sales force can help Credit Acceptance navigate the challenges of a competitive auto-finance landscape.

“Our outlook is that we're planning on the current difficult environment lasting for the foreseeable future,” Roberts said. “And if that turns out to be too pessimistic, then that’s great. But that’s what we’re planning for. And so I guess we look at the numbers. We feel like our chances of growing are a lot better if we have a little bit larger sales force, so that's what we're working toward.

“We had two quarters of negative unit volume change. And this quarter was up, but it was only up 1 percent,” he continued. “I don’t think that the additions to the sales force really added much to that at this point. They’re very new. They’re still getting up to speed. And I think, again, the increase in the sales force is something that will pay off next year or the year after. Probably not this year.”

Overall performance

As Roberts mentioned, Credit Acceptance generated a 1-percent year-over-year lift in origination volume during the second quarter. The amount financed grew by a larger amount, 7.1 percent year-over-year.

“Dollar volume grew faster than unit volume during the second quarter of 2017 due to an increase in the average advance paid per unit,” the company said. “This increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned.

“While we were able to grow unit volume modestly during the most recent quarter after two quarters of declines, our overall progress in growing unit volumes has slowed considerably over the last six quarters,” Credit Acceptance officials continued. “This trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes.

“In addition, in response to the decline in forecasted collection rates experienced in 2016, we adjusted our initial collection forecasts downward during 2016. While the adjustments have been modest, we believe these adjustments have had an adverse impact on unit volumes,” the company went on to say.

All told, Credit Acceptance reported that its Q2 consolidated net income came in at $99.1 million, or $5.09 per diluted share, up from $84.9 million, or $4.17 per diluted share, for the same period in 2016.

After seeing the top-line metrics, the investment community pushed Roberts for some clarity on how Credit Acceptance portfolio vintages are performing in an effort to spot future trends.

I think that the clearest number to start with if you're trying to understand loan performance is the net cash flow change for the quarter that’s disclosed,” said Roberts, who noted that the company’s Q2 total net cash flow change was $8.8 million. “It’s a positive number, but it’s obviously a very small one.

“The total undiscounted cash flows that we’re attempting to forecast are somewhere around $5.8 billion,” Roberts continued. “So when you have an $8.8 million move, that’s basically flat.”

After the analyst rephrased the question, Roberts added, “Again, I think the main takeaway is if you’re looking at $5.8 billion in cash flows we’re trying to forecast, if you look at the results for this quarter or really over the last six quarters or even longer than that, the cash flows have been remarkably stable. So I think that's a good thing, and that’s really the main takeaway

CFPB matters

Credit Acceptance stated its quarterly filing with the Securities and Exchange Commission that the company now is contending with an inquiry from the CFPB along with ongoing actions involving the Federal Trade Commission and Maryland’s attorney general.

“As of June 2017, we were informed that the Consumer Financial Protection Bureau’s Office of Fair Lending and Equal Opportunity is investigating whether the company may have violated the Equal Credit Opportunity Act and Regulation B,” Credit Acceptance said in its SEC filing.

“We are cooperating with the inquiry and cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this inquiry,” the company continued.

During the conference call, Wall Street observers asked Roberts to elaborate about what the CFPB inquiry is entailing.

“We don’t have a lot to add to what's in the (filing),” Roberts said. “The CFPB is fairly sensitive regarding disclosures of ongoing matters, so we try carefully to walk the line between our obligations to the SEC and to shareholders and the sensitivities of the CFPB. So I won’t try improve upon what we put in the (filing).”

The filing indicated that the inquiry from the FTC stems from Credit Acceptance allowing dealers to use GPS and starter interrupt devices while Maryland’s attorney general is looking into the company’s repossession and sale policies and procedures within the state.

3 more states added to Reynolds’ LAW F&I Library

DAYTON, Ohio - 

Now Reynolds and Reynolds only has seven states to go to cover all of the U.S. with resources from its LAW F&I Library — a comprehensive catalog of standardized, legally reviewed finance and insurance (F&I) documents for franchised dealers.

Reynolds recently released the LAW F&I Library into three more locations — Nebraska, New Hampshire and Rhode Island — lifting the company’s compliance footprint to 43 states. These documents can be used by dealership F&I offices to complete the vehicle sales process with buyers.

“We are pleased to announce the availability of the LAW F&I Library in Nebraska, New Hampshire and Rhode Island,” said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services. "Dealers will continue to face growing expectations from consumers for a more engaging and smoother car-buying experience. The documents in the LAW Library are written in consumer-friendly language to help create a more efficient, transparent and understandable F&I process in every transaction.

“By increasing the efficiency of the F&I process, dealers can deliver a better customer experience for buyers at the dealership,” Kirwan continued.

Kirwan also noted LAW brand documents can help dealers keep pace with regulatory developments in automotive because the documents in the LAW F&I Library are regularly reviewed and updated for legal sufficiency. Reynolds' industry-leading forms specialists manage the review alongside Reynolds' outside legal partners.

In addition, the printed documents in the LAW F&I Library are available in digital format, which can help facilitate the conversion to laser-printed forms and e-contracting transactions. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I (e-F&I) solutions.

Now with Nebraska, New Hampshire and Rhode Island in the offering portfolio, other states where Reynolds resources are available include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming.

Hudson Cook rolls out 7th edition of CARLAW F&I Desk Book

HANOVER, Md. -, publisher of automobile financing and leasing legal compliance services and part of the Hudson Cook portfolio, announced that it has updated its popular CARLAW F&I Legal Desk Book. Winner of the Axiom Business Book Award, the book gives readers 363 things to know about dealer finance laws and regulations. 

Now in its seventh edition, CARLAW F&I Legal Desk Book — The Answer Book for Finance and Insurance Professionals, presents a law-by-law, regulation-by-regulation guide through the legal maze that dealers face every day. Authored by Thomas Hudson, Michael Benoit, Ralph Rohner and the attorneys at Hudson Cook, this new edition reflects the latest updates to the federal laws and regulations affecting F&I practices. 

“Formatted in a straightforward Q and A design, (the book) addresses many of the everyday compliance issues dealers face and includes links to the actual laws and regulations discussed in each chapter,” the publisher said.

The 390-page book is designated as the official textbook for the Association of Finance and Insurance Professionals’ Certified F&I Professional Program, and is available for $49.95 (plus shipping and handling) by going to this website.   

House approves resolution to stop arbitration rule


Now it’s the Senate’s turn.

The House approved resolution on Tuesday leveraging authority provided under the Congressional Review Act (CRA) to stop the Consumer Financial Protection Bureau’s final rule prohibiting the use of class action waivers in arbitration clauses.

Despite all House Democrats and one Republican voting against H.J. Res 111, the resolution cleared the chamber by a vote of 231-190.

In order for the CFPB’s new mandate to keep from going into effect on Sept. 18, the Senate needs a simple majority vote approving a similar resolution; an action both the American Banking Association and Consumer Bankers Association hope happens soon.

“We applaud members of the House for taking a stand on behalf of consumers by voting to overturn the CFPB’s arbitration rule. Today’s action is critical to ensuring the Bureau doesn’t provide trial lawyers with a regulatory windfall at consumers’ expense,” ABA president and chief executive officer Rob Nichols said in a statement. “We thank House lawmakers for today’s vote, and urge members of the Senate to join them in overturning this anti-consumer rule.”

In a separate statement, CBA president and CEO Richard Hunt added, “Today’s House vote is a resounding victory for consumers. Consumers’ access to arbitration, which has long provided a faster, more cost-effective and higher recovery alternative to class action lawsuits, should not be undermined by a harmful rule resulting from an incomplete study by the CFPB.

“We encourage the Senate to follow the House’s lead and overturn this anti-consumer arbitration rule,” Hunt went on to say.

All cheering the House's action was Steve Jordan, CEO of the National Independent Automobile Dealers Association. Jordan said the House vote is "encouraging" to the association, which represents the more than 40,000 independent dealers doing business nationwide.

"It's encouraging to see Congress act so swiftly to oppose a rule that obviously disregards the best interests of consumers," Jordan said. "We urge members of the Senate to act just as swiftly and decisively to keep this unnecessary and harmful regulation from taking effect."

Members of the Senate Banking Committee filed their resolution last Thursday but information available through the upper chamber’s website doesn’t indicate when a vote might occur. When it does, Republican support appears strong.

“While I appreciate the need for strong consumer protections, this rule does not strike the right balance in helping consumers resolve disputes,” said Sen. Bob Corker of Tennessee.

And Sen. Ben Sasse of Nebraska took an even stronger position against what the bureau, led by director Richard Cordray, has done.

“Congress, not King Richard Cordray, writes the laws,” Sasse said. “This resolution is a good place for Congress to start reining in one of Washington’s most powerful bureaucracies.”

Meanwhile, Rep. Maxine Waters, a California Democrat and ranking member of the House Financial Services Committee, shared her disappointment that only one of the chamber’s Republican lawmakers opposed the arbitration resolution.

“Forced arbitration benefits large corporations and Wall Street banks to the detriment of consumers,” Waters said. “The Consumer Financial Protection Bureau’s rule helps to ensure that financial institutions are held accountable, and fully protects the legal rights of consumers, including servicemembers and veterans.

“Republicans have shamefully moved to nullify the Consumer Bureau’s good work, in a move that ultimately enables financial institutions to get off the hook when they commit wrongdoing, with less redress for consumers,” she continued. “This resolution steamrolls over the Consumer Bureau’s sensible rule, without regard for the harm that will result for American consumers and families.”

And consumer groups such as the Center for Responsible Lending (CRL) aren’t pleased with the House vote, either.

“Wall Street and predatory lenders want to cheat consumers out of their hard-earned money and get off scot-free. They want to stop Americans from exercising their seventh amendment right to have their day in court,” said Melissa Stegman, CRL’s senior policy counsel.

Republicans out to stop CFPB arbitration rule


House and Senate lawmakers wasted little time in using Congressional Review Act (CRA) authority to start an effort to stop the Consumer Financial Protection Bureau’s final rule prohibiting the use of class action waivers in arbitration clauses.

The CRA permits Congress to overturn an agency rule within 60 legislative days after an agency has submitted the rule to Congress, with a simple majority vote. The rule appeared in the Federal Register on Wednesday, meaning that barring a literal act of Congress, this regulation is effective on Sept. 18.

In the House, a resolution was sponsored by Rep. Keith Rothfus, a Pennsylvania Republican.

“As a matter of principle, policy and process, this anti-consumer rule should be thoroughly rejected by Congress, and I applaud Congressman Rothfus for leading the effort in the House to do just that,” said House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican.

“In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives. I can think of no better example of such bureaucrats than those at the CFPB. This CRA is a critical step towards fulfilling our promise to the American people and truly protecting consumers,” Hensarling said.

Sen. Mike Crapo, an Idaho Republican and chairman of the Senate Banking Committee, is leading the charge with his Republican colleagues on a resolution from Congress’ upper chamber.

“Members of Congress previously expressed concerns with the proposed version of the rulemaking – concerns that were not addressed in the final rule,” Crapo said. “The rule is based on a flawed study that leading scholars have criticized as biased and inadequate, noting that it could leave consumers worse off by removing access to an important dispute resolution tool.

“By ignoring requests from Congress to reexamine the rule and develop alternatives between the status quo and effectively eliminating arbitration, the CFPB has once again proven a lack of accountability,” he continued. “Given the problems with the study and the bureau’s failure to address significant concerns, it is not only appropriate but incumbent on Congress to vote to overturn this rule.”

Two leading banking industry organizations immediately cheered the lawmaker actions.

—From Rob Nichols, who is president and chief executive officer of the American Bankers Association: “We applaud … members of the Senate Banking and House Financial Services Committees for putting consumers first, and taking the first steps to overturn the CFPB’s misguided arbitration rule.

“In moving forward with the rule, the CFPB chose to ignore the results of its own study — which found that consumers fare far better in arbitration — and instead promote class action lawsuits designed to benefit trial lawyers at consumers’ expense. The CFPB’s study found that consumers receive nothing at all in nearly nine out of 10 class action lawsuits, while people who prevail in arbitration receive $5,389 on average compared to just $32.35 in litigation.

“In reality, the vast majority of disputes get resolved quickly and amicably without the need for arbitration or legal action. If arbitration disappears, the Bureau will force consumers to navigate an already overcrowded legal system where the only winners will be trial lawyers. We think our customers deserve better, and we urge lawmakers in both chambers of Congress to overturn this anti-consumer rule as soon as possible.”

—From Richard Hunt, who is president and CEO of the Consumer Bankers Association: “Arbitration has long provided a faster, more cost-effective and higher recovery means of addressing consumer disputes than class action lawsuits. The CFPB’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit.

“The real benefactors of the CFPB’s arbitration rule are not consumers, but trial lawyers who pocket over $1 million on average per class action lawsuit. Additionally, class action attorneys take on average 21 percent from their clients’ cash recoveries while some take as much as 63 percent. We encourage both the Senate and the House to move swiftly and overturn the CFPB’s anti-consumer arbitration rule.”

Meanwhile, consumer-facing organizations such as People’s Action expressed frustrations about what these lawmakers put in motion. Legacy organizations that created People’s Action a year ago include Alliance for a Just Society, Center for Health, Environment and Justice, Institute for America's Future, National People’s Action and USAction Education Fund.

“Once again Republicans in Congress have stood up tall and declared themselves firmly on the side of big banks and payday lenders, even when they break the law,” People’s Action said in a statement. “Today’s cynical, industry bought-and-paid-for move to invalidate the CFPB’s new arbitration rule, is possibly the most blatant anti-consumer move by Congress yet. 

“Forced arbitration strips consumers of the right to seek restitution from a judge when they are harmed. Forced arbitration is a proposition totally stacked in the predators’ favor,” the organization continued.

“Forced arbitration allows banks like Wells Fargo to keep massive law-breaking scams like their fraudulent account scandal out of the courts and the public’s eye, which they did for years before the CFPB stepped in and shut down the Wells Fargo account scheme. By trying to invalidate the CFPB’s arbitration rule, Congress wants to lock our families out of the courts and keep them from bringing big banks to justice,” People’s Action went on to say.

People’s Action added that “the public is not fooled,” while referencing a poll by Americans for Financial Reform found 78 percent of Americans want more Wall Street regulation.

“But Congressional Republicans aren’t listening to their voters, they’re listening to their donors,” People’s Action said.

A press conference hosted by the House Financial Services Committee can be viewed here or via the window at the top of this page.