Last Thursday Senator Elizabeth Warren (D-MA) sent letters to the CEOs of sixteen of the top U.S. banks, asking them to go on record with their position on the Consumer Financial Protection Bureau’s (CFPB) arbitration rule.
The CFPB issued a rule on July 10 which prohibits banks and other creditors from including a clause in their agreements that prohibits the use of class action bans in certain financial contracts. The CFPB’s blog post – which also contains an animated video explaining the rule -- stated,
“Our new rule will restore the ability of groups of people to file or join group lawsuits. In some cases, not only will companies have to provide relief, they will also have to change their behavior moving forward.”
Opponents of the rule claim that this is an example of regulatory overreach, and that it really only supports wealthy trial lawyers, who often walk away with hundreds of thousands – or millions – of dollars from class action lawsuits, while consumers receive a check for something like $23 (Warren’s letter cites a figure of about $64, from the CFPB’s Arbitration Study). House Financial Services Chairman Jeb Hensarling (R-TX) said,
“Americans were promised a Consumer Financial Protection Bureau but instead they obviously got a Trial Lawyer Enrichment Bureau.”
Within two weeks, the U.S. House of Representatives invoked the rarely used Congressional Review Act to begin the process of overturning the rule. The Congressional Review Act allows Congress to revoke a rule issued by a federal agency by enacting a joint resolution of disapproval within 60 days of the announcement of the rule. On July 25, the House voted 231-190 against the CFPB’s arbitration rule. The Senate, now in recess until September 5, needs to do the same shortly after its return. If they do, it is widely assumed President Trump will follow suit.
Warren’s letters, which also request data on the financial institutions’ use of arbitration clauses in consumer agreements and the outcomes of arbitration proceedings, were sent to JP Morgan Chase, Bank of America, Wells Fargo & Company, Citigroup Inc., U.S. Bancorp, PNC Financial Services Group, Inc., TD Group US Holdings, Capital One Financial Corporation, HSBC North America Holdings, Charles Schwab Corporation, BB&T Corporation, Suntrust Bank, Barclays US, Ally Financial Inc., American Express Company, and Citizens Financial Group.
Senator Warren requested a response by September 1, 2017.
Many rules associated with financial services – like debt collection -- can be nuanced and complicated, and walking the fine line between public relations, advocacy, and duties to shareholders can be tricky. Associations typically do the work of representing their members in matters like this. Indeed, Warren’s letter specifically mentions the U.S. Chamber of Commerce, the American Bankers Association, and the Financial Services Roundtable. Here is the letter that those groups – and several others – submitted to Congress in July 2017.
It is notable that a lawmaker would call out the leaders of affected firms – essentially daring them to publicly support a position some deem to be “anti-consumer.”
It will be interesting to see whether the CFPB’s proposed debt collection rule (anticipated perhaps later this year) will draw similar passion from lawmakers and industry.