The battle over the Consumer Financial Protection Bureau’s recently published rule banning mandatory arbitration clauses is continuing to pick up steam as the U.S. Senate prepares for a vote later this year that will determine the fate of the rule.
The U.S. Office of the Comptroller of the Currency said in a statement Monday it would not attempt to delay the rule, which would prevent class-action lawsuits pertaining mostly to credit card and bank account disputes.
But in that same statement, Acting OCC Comptroller Keith Noreika encouraged the Senate to finish what the House Republicans started last week when they voted 231-90, almost straight down party lines, in favor of a resolution that would annul the regulation.
“The final rule prevents banks from using an effective risk mitigation tool and will eliminate one option consumers have to resolve their concerns without the cost and delay of litigation,” he said in a statement. “Ultimately, the rule may have unintended consequences for banking customers in the form of decreased availability of products and services, increased related costs, fewer options to remedy consumer concerns, and delayed resolution of consumer issues. The rule may turn out to be the proverbial straw on the camel’s back.”
Noreika also said he is disappointed that the CFPB already published the rule in the Federal Register because it does not give OCC economists the necessary time to conduct their independent review of the data and analysis used to support and develop the Final Rule.
Due to the rapid process the CFPB published the rule, according to Noreika, the OCC did not have time to complete a thorough review before a petition must be filed with the Financial Stability Oversight Council to delay the rule.
One day after Noreika’s statement, top Democrats on the Senate Banking Committee including Sen. Elizabeth Warren sent a letter to the Senate Banking Committee’s chairman, calling for more hearings on the Wells Fargo scandals, which could shed more light on the CFPB rule.
“Wells Fargo used forced arbitration clauses in the contracts for legitimate customer accounts to prevent customers from suing in court for damages arising from the creation of fake accounts,” top Democrats stated in the letter. “A hearing with Mr. [Timothy] Sloan (Wells Fargo CEO) and Mr. [Stephen] Sanger (Wells Fargo board of directors chairman) would allow members to obtain more information about whether this use of forced arbitration clauses has in fact benefited consumers or not.”
CFPB Director Richard Cordray has cited the Wells Fargo scandal, which involved the bank allegedly setting up phony-accounts and taking out unwanted auto insurance for hundreds of thousands of borrowers, as an example of why the rule is needed.
Cordray has argued the rule is needed so consumers can stand up for themselves without having to wait for the government to bring a suit forward, and so they are not prohibited from going after a company because they can’t afford attorney fees on their own.
Studies the CFPB conducted leading up to the rule ultimately showed that group lawsuits were successful in providing financial relief to consumers, whereas arbitration wasn’t nearly as effective.
In addition to concerns from large banks, community banks have also expressed worry that the rule would open them up to costly and labor-intensive litigation, which they say is not always the best way to deal with disputes.
The new rule could also require banks to restructure their agreements with third-party credit card providers.