Congress Blocks CFPB Arbitration Rule
In a move that gutted consumer advocates, the Senate used its powers under the Congressional Review Act to block the implementation of a rule passed by the Consumer Financial Protection Bureau (CFPB) that would have restricted the ability of large financial institutions to compel arbitration on a class-wide basis.
Arbitration functions like private court. Arbitration allows for the speedy and efficient resolutions of claims in many cases. But for customers with smaller claims, arbitration can prove too costly. The rule, which was first proposed in May 2016, would ban mandatory arbitration agreements that prevented consumers from banning together and bringing their smaller claims all together in one action – commonly known as a “class action.”
Class actions are vital to vindicating the rights of consumers who incur low-value damages (such as a $100) as a result of widespread wrongdoing that impacts thousands of customers. For example, Wells Fargo was caught opening fake bank accounts for their customers and charging unnecessary fees. It would make little financial sense for a customer to pursue an individual arbitration claim for the fees because the costs of arbitration exceed the amount of damages incurred. But, if all impacted customers were able to band together on a class-wide basis, the customers might be able to recover the fees.
For better or worse, the Supreme Court of the United States has taken a firm stance in favor of arbitration agreements. Realistically, the CFPB’s rule might very well have been challenged by the financial industry. But, the Senate’s vote removed any chance, however small, that the Supreme Court would recede from its systematic embrace of mandatory arbitration provisions.