Why industry is ‘disappointed’ with CFPB’s arbitration rule

CARY, N.C. - 

Clearly the industry is “disappointed” that the Consumer Financial Protection Bureau earlier this week issued a final rule prohibiting the use of class action waivers in arbitration clauses. The American Financial Services Association, the National Independent Automobile Dealers Association and the American Bankers Association all used that specific adjective when relaying their reaction to the CFPB’s actions.

And the Consumer Bankers Association also didn’t cheer the decision made by the bureau, which announced a new rule to ban dealerships and auto finance companies from using mandatory arbitration clauses “to deny groups of people their day in court.”

AFSA asserted the CFPB has finalized a rule on arbitration that ignores its own research and harms consumers, while enriching plaintiff’s attorneys.

“We are disappointed that the bureau has decided to move forward with a final rule,” said Bill Himpler, executive vice president with AFSA. “The bureau has ignored its mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act to limit arbitration only if such a prohibition is in the public interest and for the protection of consumers.”

AFSA, along with many other trade associations, has submitted a comment letter on the CFPB’s proposed arbitration rule, advocating for alterations in the best interest of both consumers and the industry. 

“Numerous reports, including the CFPB’s own study, show the value that consumers derive from arbitration, especially when compared to class-action lawsuits. The CFPB’s study clearly demonstrates that the winner in class-action litigation is almost always the plaintiff’s attorneys, who pocket millions of dollars and leave the consumer with little to no financial compensation,” Himpler said.

NIADA pointed out that the CFPB’s study on arbitration found consumers receive on average more than $5,000 in arbitration hearings compared to roughly $32 in class-action litigation — if they receive anything at all.

“We are disappointed that the bureau has decided to adopt this ill-conceived rule,” NIADA chief executive officer Steve Jordan said. “Today’s action shows the CFPB has decided to put the interests of class-action lawyers above those of the very consumers the bureau is mandated to protect.

“Arbitration has proven to be a faster, less expensive and more effective means of resolving consumer disputes than class-action lawsuits. And consumers who receive an award in arbitration almost always receive more than they would in a class-action lawsuit, a point proven by the CFPB’s own research,” Jordan continued.

“This rule will force small businesses to bear additional costs in defending class-action litigation, particularly meritless suits,” Jordan went on to say. “Those costs will ultimately be borne by consumers, and in the case of those who are credit-challenged, it could prove to be too much.”

ABA president and CEO Rob Nichols also cited the disparity in monies consumers often receive via arbitration versus litigation. Nichols also agreed with the premise that attorneys are likely to receive the greatest windfall via the bureau’s decision.

“We’re disappointed that the CFPB has chosen to put class action lawyers — rather than consumers — first with today’s final rule,” Nichols said. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration. The Bureau’s own study found that arbitration has significant benefits over litigation in general and class actions in particular. Arbitration is a convenient, efficient and fair method of resolving disputes at a fraction of the cost of expensive litigation, which helps keep costs down for all consumers.

“Despite acknowledging these benefits in its own study, the Bureau has chosen to write a rule that would essentially eliminate arbitration — and force consumers into court — by requiring companies to face a flood of attorney-driven class action lawsuits from which consumers receive virtually nothing. Under this final rule, consumers lose,” he continued.

“As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking,” Nichols went on to say.

NIADA senior vice president of legal and government affairs Shaun Petersen said the association will work with congressional leaders to address the arbitration issue legislatively.

“From the outset of this rulemaking process, NIADA has voiced concern about the poor policy reflected in this proposal to both the CFPB and to members of Congress,” Petersen said. “As Congress considers CFPB reform, we will be urging lawmakers to overturn this anti-consumer rule.”

No matter the organization, CBA president and CEO Richard Hunt spelled out the argument representatives are likely to make before federal lawmakers.

“Arbitration has long provided a faster, better and more cost-effective means of addressing consumer disputes than litigation or 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,” Hunt said.

“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. By only using fuzzy math is the CFPB able to interpret these figures as favorable to consumers. Given the longstanding benefits of arbitration, we encourage Congress to move swiftly and overturn this anti-consumer rule,” Hunt went on to say.

Editor’s note: SubPrime Auto Finance News reached out to multiple legal experts to collect their observations on how the industry can move forward. Their assessment will be published in a future report.

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