This week the Consumer Financial Protection Bureau (CFPB) issued a new rule that prevents certain financial firms from using clauses in agreements with consumers, known as arbitration clauses, to stop litigation complaints. Some of these arbitration clauses require complainants to undergo mediated arbitration with these companies instead of class-action lawsuits. The new rule also requires companies to pay correspondence fees if their arbitration administrators do not pay the full amount of financial settlements.

This rule was not confirmed or enacted by any group of elected officials, it was agreed upon by a small group of political bureaucrats appointed by former President Obama. This is one of many regulations that the bloated Obama-era CFPB has imposed on the financial sector. It is an overreach by the government and while it is a burden on financial companies, it is extremely harmful to the consumer.

It may seem as if by allowing consumers to enter class-action lawsuits with these financial companies and banks they would have a better chance to right the wrongs of alleged fraud and abuse. This could not be further from the truth.

The arbitration clauses that the CFPB and the Director, Richard Cordray, claim are making it “impossible” for consumers to seek proportional compensation and restitution are actually a benefit to American consumers. Within these clauses it allows for settlements to be made that on average award more money than litigation would.

In their own study, the CFPB even confirms that typically payouts to consumers after litigation was less than $2.00 a person, which is significantly lower than the amount awarded during the arbitration process. In the same study, it states that only 20 percent of class-action lawsuits are approved and among those the average wait time for a settlement is around 3 years. This is compared to the arbitration process where the wait time is only 6.9 months.

By issuing this rule, the CFPB forces consumers to forego the less stressful and more beneficial process of arbitration. These unchecked and unnecessary regulations do not help consumers, but are a boon for trial attorneys.

The CFPB claims this new rule will help consumers, but like most of the regulations and rules it churns out, it puts an even larger chokehold on Americans under the guise of protecting them.


Photo Credit: Adam Fagen