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After a few month hiatus, Congress is firing up the Congressional Review Act (CRA), this time to protect a useful tool for resolving disputes.
Earlier this month, the Consumer Financial Protection Bureau (CFPB) went “rogue” and issued a regulation eliminating the option of arbitration. Apparently it prefers letting plaintiff lawyers launch class-action lawsuits.
However, as Sen. Tom Cotton (R-AR) and Rep. Keith Rothfus (R-PA) explain, consumers get the short end of the stick from those:
There are already about 15 million class-action lawsuits filed each year. But just 13% of them actually result in a benefit to consumers—and the average payout is roughly $32. Plaintiff lawyers, meanwhile, earn an average of $1 million per settled case. In other words, trial lawyers walk away with millions, while consumers are stuck paying new fees to cover the costs. And companies aren’t going to pay for arbitration if they’re also open to class-action lawsuits; it defeats the whole purpose. So consumers will lose out on a superior option.
Thankfully Congress can rectify this and protect arbitration as an effective option for consumers and businesses.
The Congressional Review Act (CRA) gives Congress the chance to repeal federal regulations 60-days after they are put in the Federal Register. So far, this Congress has used the CRA to wipe 14 regulations off the books.
In a letter to the House of Representatives supporting the legislation, the U.S. Chamber explained why it should be repealed:
Even though this regulation is directed at financial firms, the CFPB’s rule impacts businesses of all types that the Bureau believes touch consumer finance – even mobile telephone service providers and website operators.
This rule is the latest far-reaching regulatory act by the agency. Rather than taking a careful and measured approach that respects traditional checks and balances, the CFPB chose to take advantage of a questionable statutory structure that exempts it from the limits that apply to every other regulatory agency. The CFPB has been operating under a cloud of illegitimacy since its structure was found to be unconstitutional by a panel of the Court of Appeals for the D.C. Circuit.
In issuing this rule, the CFPB ignored the views of numerous members of Congress, the concerns of another government regulator as well as the findings of its own foundational study that shows the problems associated with class action litigation. Instead, the CFPB decided to issue a regulation that interferes with freedom of contract, imposes new burdensome regulations, hurts consumers, and rewards class action lawyers.
Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, and David Hirschmann, president and CEO of the U.S. Chamber Center for Capital Markets Competitiveness praised the House vote:
Members of the House took a much-needed step toward checking the power of a rogue agency and its attempt to impose a bad rule on American consumers. The CFPB’s arbitration rule exemplifies how the agency has abused its uniquely independent structure, even amid disputes about its constitutionality, to pursue a consistently slanted and ill-conceived agenda. We applaud these members of Congress for their willingness to use the tools available to right the wrongs of the arbitration rule, and we strongly encourage the members of the Senate to do the same.
Now, it’s off to the Senate for the next step in reining in the out-of-controll agency and protecting arbitration as an efficient, cost-effective tool for consumers and businesses.