On Wednesday, May 18, the House Financial Institutions and Consumer Credit Subcommittee held a hearing entitled, “Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers?” The hearing follows the release of Consumer Financial Protection Bureau’s (CFPB) Notice of Proposed Rulemaking covering the use of arbitration agreements containing class action waivers in consumer financial services contracts on May 5, 2016.
The hearing included prepared remarks from Subcommittee members and written and oral testimony from four expert witnesses who were questioned by the Subcommittee.
Three of the witnesses provided testimony which critiqued the CFPB’s arbitration study and the rule’s shortcomings:
- The CFPB’s March arbitration study found that arbitration often resulted in larger and faster awards for consumers than class actions.
- The CFPB’s study focused too heavily on a single class action case and ignored findings that arbitration often resulted in larger relief for consumers.
- The study failed to collect data on arbitration settlements.
- The CFPB has lost sight of the goal of determining whether consumers benefit from arbitration.
- The proposed rules will likely eliminate arbitration and limit access to justice for individual consumers alleging individual harms.
One witness praised class actions because they deliver relief to more individuals than arbitration and that litigation tends to force changes in lending behavior more effectively than arbitration.
While the CFPB has acknowledged that data collected for its arbitration study has its shortcomings, the CFPB has ignored findings in the study that highlight the benefits of arbitration. Such benefits include:
- High dollar awards in arbitration: The average award to consumers in successful arbitration claims is approximately $5,400. The average award to consumers in a class action case is $32.
- Quick payment: Arbitrations take an average of 155 days until settlement payment. The average for class action litigation is 690 days.
The proposed regulations would only apply to arbitration agreements entered into after the end of the 180-day period that begins on the rule’s effective date. The Bureau is proposing an effective date of 30 days following publication of the final rule in the Federal Register. Thus, the proposed regulations would not apply to arbitration agreements entered into before 210 days after a final rule is published in the Federal Register. We anticipate that a final rule will not take effect sooner than the summer of 2017. Comments on the proposal are due on or before Monday, August 22, 2016.
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