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October 23, 2017 at 11:40 AM
The Trump administration on Monday took a new chance to bash the Consumer Financial Protection Bureau’s push to restrict arbitration agreements, saying the regulation—already facing challenges in court and on Capitol Hill—will only put money in the pockets of plaintiffs lawyers.
A U.S. Treasury Department report, published Monday, brought an additional voice into the effort to undercut the rule, which Republican lawmakers and the President Donald Trump-appointed temporary head of the U.S. Office of the Comptroller of the Currency have criticized for the costs it would force the financial industry to bear. Those critics, drawing from the CFPB’s arbitration study, have also argued that class actions bring meager relief to aggrieved consumers while arbitration provides a low-cost, efficient alternative to resolve disputes.
“The rule will effect a large wealth transfer to plaintiffs’ attorneys,” the Treasury Department report said. “On average, plaintiff-side attorneys’ fees account for approximately 31 percent of the payments that plaintiffs receive from class action settlements—and in many types of cases, much more. In an average case, plaintiffs’ attorneys collect more than $1 million; actual plaintiffs receive $32 each. The bureau’s data indicate that the rule will transfer an additional $330 million over five years from affected businesses to the plaintiffs’ bar.”
Against an onslaught of attacks, CFPB Director Richard Cordray has repeatedly defended the arbitration rule—a regulation that is sure to go down as the most sweeping and significant of his tenure leading the Obama-era watchdog agency. In August, Cordray took to the op-ed pages of The New York Times to argue that consumers should have the power to sue banks.
On Monday, CFPB spokesman Sam Gilford said the Treasury Department report “rehashes industry arguments that were analyzed in depth and solidly refuted in the final rule.” Mandatory arbitration clauses, he said, cost consumers billions of dollars by blocking group lawsuits.
“Banks, credit unions and other companies file class action lawsuits to pursue justice when they are harmed as a group, and our rule restores consumers’ right to do the same. The Equifax and Wells Fargo cases show how important it is for consumers to be able to band together to take legal action together,” Gilford said. “This report and similar industry analyses fail to make the case for allowing companies to continue using these clauses to deny consumers their day in court.”
