May 16, 2016 - 9:00am

Consumers Can’t Count on the CFPB

Chief Executive Officer, U.S. Chamber of Commerce

The Consumer Financial Protection Bureau (CFPB) is one of the country’s most powerful and unaccountable government agencies. Instead of fulfilling its mission to “protect consumers from unfair, deceptive, or abusive practices,” it often pursues an overtly political agenda to help its allies.

That’s what is happening with a proposed CFPB rule that would ban language in contracts between companies and consumers prohibiting class action lawsuits. That may sound like a good thing for consumers, but it’s not. This rule would effectively eliminate arbitration and replace it with class action lawsuits, which routinely leave consumers with pennies and lawyers with millions.

Is the CFPB attempting to eliminate arbitration because independent studies say it doesn’t work? No. The CFPB itself concluded that 87% of class actions provide no benefit at all to class members. Of the 13% that provide some benefit, the average payout is $35. Plaintiffs’ lawyers make about 31,000 times that amount, earning an average of $1 million per settled case.

If the class action system fails consumers, why is the CFPB embracing it? Because the powerful plaintiffs’ bar hasn’t been able to get rid of arbitration and expand class actions any other way. Congress hasn’t responded, and in 2011 the Supreme Court upheld the type of contract language the CFPB wants to ban. The trial bar, having lost its argument in the legislative and judicial branches, turned to unaccountable regulators—all in an effort to increase lawsuit revenues.

The CFPB argues that its proposed rule doesn’t directly prohibit arbitration; it merely bans contract terms prohibiting class action lawsuits. That’s like telling a teenager, “I’m not taking your car, just the keys.” The reality is that the CFPB’s rule is the practical equivalent of a direct ban. If companies are forced to spend millions paying lawyers to defend class actions, they are going to stop subsidizing arbitration. Also, since trial lawyers won’t take low-dollar arbitration claims, preferring lucrative class actions, the CFPB rule gives consumers fewer options.

Arbitration empowers consumers to resolve disputes easily and quickly on their own, without the burden of hiring a lawyer. It’s a low-cost, user-friendly way to help wronged individuals bring claims.

As this administration winds down, special interest groups will continue to push for midnight regulations on issues where they’ve been unable to get Congress to agree to their agenda. The U.S. Chamber of Commerce won’t hesitate to advocate against those regulations when they’re harmful to our economy, U.S. businesses, and Americans. The arbitration rule certainly is. The CFPB must go back to the drawing board.

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About the Author

About the Author

Thomas J. Donohue
Chief Executive Officer, U.S. Chamber of Commerce

Thomas J. Donohue is chief executive officer of the U.S. Chamber of Commerce.