From the day the Consumer Financial Protection Bureau moved to ban contract language prohibiting class action waivers, business groups led by the U.S. Chamber of Commerce prepared to write the obituary for mandatory arbitration.
The consumer agency's proposal, business advocates argued, would eliminate for customers a faster, less costly forum for conflict resolution. But the CFPB and its allies, pointing to a study that Congress commissioned when it created the agency in 2010, said forced arbitration shuts out millions of consumers from the courts, essentially silencing customers who would otherwise bring claims.
The CFPB's proposal has generated thousands of comments, many from opponents who argue the ban would only benefit trial lawyers. Insurance regulators have expressed their own concerns. Hundreds of law professors are backing the consumer agency's proposed rule. U.S. lawmakers are divided.
Two of the heavy-hitters in the debate — the U.S. Chamber of Commerce and, on the other side, consumer advocacy group Public Citizen — plan to submit their positions Monday, when the comment period closes.
"The bureau's proposed rule would effectively eliminate arbitration. Even though the bureau claims not to be prohibiting arbitration agreements entirely, companies will not maintain dual systems of dispute resolution, as the proposed rule would require," the Chamber wrote in its comment.
Here are some highlights from the comments filed thus far.
See also:
Concern about overlapping regulations
Broker-dealers have drawn distinction between investment contracts and consumer financial contracts — and they're telling the CFPB to leave the regulation of their industry to the U.S. Securities and Exchange Commission. A trade group, the Securities Industry and Financial Markets Association, commented on July 1 that Congress did not intend in the Dodd-Frank reform law to give the CFPB and the SEC overlapping authority.
"We question the necessity and appropriateness of the CFPB extending the proposed rule to SEC-regulated entities, based upon clear congressional intent, the explicit statutory language of the Dodd-Frank Act, and sound policy and practical considerations," wrote Kevin Carroll, the group's managing director and associate general counsel.
"In short, we believe that the CFPB should defer regulation of arbitration generally, and arbitration clauses specifically, for SEC-regulated entities to the SEC," Carroll wrote. "Thus, the proposed exemption for broker-dealers in the proposal, and any prospective exemption for investment advisers, are unnecessary."
State Attorneys General
On Aug. 11, a group of 19 state attorneys general—under the masthead of Massachusetts Attorney General Maura Healey — wrote that class action lawsuits complement their enforcement efforts.
The group, which included California attorney general and U.S. Senate candidate Kamala Harris, highlighted a 2010 decision that forced Wells Fargo to pay $203 million in restitution for overdraft policies designed to maximize fees. The decision had the dual effect of compensating customers and changing business practices.
"This decision had ripple effects throughout the banking industry," the state attorneys general wrote.
Rather than expedite the resolutions of claims, the attorneys general added, forced arbitration has steered consumers away from bringing disputes to begin with. The U.S. Supreme Court decision inAT&T Mobility v. Concepcion "has resulted—foreseeably—in consumers simply foregoing their rights to pursue claims for small amounts under financial services contracts," they wrote.
Insurance regulators weigh in
In the text of the proposal, the CFPB inserted language that carved out the "business of insurance" from the activities subject to the ban on forced arbitration clauses.
State insurance regulators said in an Aug. 4 comment that they "appreciate that the bureau appears to be attempting to separate out the 'business of insurance' from the scope of the rule." Still, the National Association of Insurance Commissioners asked the CFPB to specify that the arbitration rule does not extend to life insurance policy loans.
"We believe state law remains the appropriate vehicle for any such restrictions related to the business of insurance," wrote the National Association of Insurance Commissioners leadership, including the top insurance regulators of Missouri, Wisconsin, Tennessee and Maine.
