CU Trades, Consumer Groups Clash Over CFPB Arbitration Petition

A coalition of consumer groups and a group of financial services trade groups—including CUNA and NAFCU—are squaring off over a petition filed with the CFPB asking that consumers be given more choice about whether to pursue arbitration in disputes over financial contracts.

The consumer groups, including the National Association of Consumer Advocates, the National Consumer Law Center, and Americans for Financial Reform, argued that consumers who sign financial contracts are unaware that they have agreed to arbitration to settle disputes.

Many contracts, including those in financial services, include provisions that require that any dispute be settled in arbitration.  

That, the consumer groups contend, is not fair and they want the CFPB to address the issue.

“Forced arbitration allows a company to write the rules, select the umpire, and even unilaterally change the rules to immunize themselves against any possibility of being held accountable,” the groups, said, in a petition asking the CFPB to adopt a rule governing arbitration.

The financial services trade groups, including the American Bankers Association and the Independent Community Bankers of America, disagreed.

“Arbitration reduces transaction costs and enables fair, speedy, and efficient dispute resolution, thereby providing significant advantages to consumers, businesses, and the public at large,” they wrote in a letter to the CFPB.

And, they added, Congress in 2017 adopted a resolution voiding a previous arbitration rule issued by the agency. Under federal law, they assert, the agency is prohibited from issuing a similar rule.

The CFPB, under the Biden Administration, instituted a petition process in which interested parties may request that the agency take action on a specific issue.

Petition Details

The consumer groups filed their petition in September; comments responding to it were due last week.

In the petition, the consumer advocates said that when disputes arise, consumers should be given other options besides arbitration for settling disputes.

“The Bureau must ensure that consumers are presented with meaningful choices with respect to their right to access the civil justice system,” the groups said.

Trade Groups Respond

However, the financial services trade groups told bureau officials that even if they wanted to issue a new arbitration rule, the Congressional Review Act prohibits them from doing so.

In 2017, before leaving office, former CFPB Director Richard Cordray, an Obama Administration nominee, issued a rule prohibiting mandatory arbitration agreements.  

That same year, Congress adopted—and President Trump signed—a resolution voiding the rule. The Congressional Review Act prohibits the agency from issuing a substantially similar rule.

The current petition requests the CFPB to issue a rule similar to the one that Congress had nullified, the financial groups said.

In addition, they said, the petitioners rely on an outdated 2015 study in making their case, adding that under the Dodd-Frank Act, the CFPB would need more recent research on which to base a proposed rule.

The consumer groups disagree, saying that the bureau retains the authority to address forced arbitration.

The 2017 rule prohibited class action bans in arbitration clauses, they said. The rule that they are requesting would give consumers the right to make the choice about dispute resolution after a dispute arises.

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