This week the Senate could vote on a Joint Resolution (S.J. Res. 47) providing for congressional disapproval of the rule issued by the Consumer Financial Protection Bureau (CFPB) related to "Arbitration Agreements." Sponsored by Sen. Mike Crapo (R-Idaho), S.J. Res. 47 would use the Congressional Review Act (CRA) to overturn a new rule issued by the CFPB intended to ban financial service providers (banks, credit card companies, small dollar lenders, etc.) from using mandatory arbitration clauses to resolve their disputes and avoid class action lawsuits.
Arbitration has a long history of providing consumers with efficient, cost-effective and fair results in disputes with financial service providers. The Heritage Foundation explains the "only real alternative" to arbitration is "expensive and time-consuming litigation that in many cases does more to line trial lawyers' pockets than redress consumers' injuries." In other words, "any action to curtail arbitration would only injure consumers and workers." In a recent commentary, Norbert Michel, Director of the Center for Data Analysis at The Heritage Foundation, elaborated:
Many trial lawyers oppose arbitration because it denies them of exorbitant class-action lawsuit fees-it is an inexpensive alternative to courtroom litigation. Arbitration is undeniably a fair and effective alternative for resolving disputes, particularly between businesses and consumers. Proponents of the bureau's rule are upset that financial services companies often use mandatory arbitration clauses in their contracts, thus preventing customers from resolving disputes through class-action litigation.
Congress authorized the CFPB to study arbitration agreements in the misnamed Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. According to Diane Katz, Senior Research Fellow in Regulatory Policy at The Heritage Foundation:
The statute also authorized the bureau to regulate arbitration agreements "if the bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers. The findings in such rule shall be consistent with the study conducted under subsection (a)." The bureau produced an arbitration study in 2015, but the content was methodologically meaningless and the rule is not, in fact, consistent with the study.
In response to the CFPB study, more than 50 members of Congress called upon Director Richard Cordray to reexamine the bureau's "fatally-flawed study." The Arbitration Rule is just the latest of many unwarranted and costly regulations perpetrated by the CFPB that undermine consumer choice and offend the Constitution's separation of powers.
Ultimately, Congress should act to eliminate the CFPB altogether or at least dismantle the Bureau as outlined in the Financial CHOICE Act of 2017 (H.R. 10). In the meantime, passing S.J. Res. 47 will protect consumers and send a clear message to federal agencies that Article I's legislative powers are vested in Congress, not Washington, D.C. bureaucrats.
Heritage Foundation: The Unfair Attack on Arbitration: Harming Consumers by Eliminating a Proven Dispute Resolution System (2013)
Heritage Foundation: Time to Eliminate the Consumer Financial Protection Bureau (2016)
Heritage Action: Congress Must Roll Back CFPB's Costly Arbitration Rule (2017)
Heritage Foundation: This Official Had the Spine to Stand Up to the Powerful CFPB. Congress Should Follow His Lead (2017)
Heritage Foundation: House and Senate Set to Protect Consumers From an Overreaching Federal Agency (2017)