Trump Signing Repeal of CFPB’s Arbitration Rule
This afternoon, President Trump is signing legislation to repeal the Consumer Financial Protection Bureau’s arbitration rule. The repeal was already approved by the House in July and by the Senate two weeks ago.
The rule was designed to prevent banks from using arbitration clauses in their credit card and account agreements. These clauses make it difficult, and in most cases impossible, for consumers to sue financial institutions for wrongful practices. Arbitration usually work in favor of the company, leaving consumers with less compensation than they may actually be owed.
The CFPB began working on the arbitration rule in early 2015. The bureau spent years studying these clauses in bank, credit union, and payday lending contracts. They found 90% of arbitration clauses prevent consumers from filing class action lawsuits.
Despite the good intent behind the rule, financial institutions and business groups have been pushing against it from the start. They believe the rule will increase transaction fees, interest rates and other costs assigned to the consumer because banks must cover more in legal fees. Furthermore, the White House says, “Under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.” Consumers may lose more money in the long run, even if their lawsuits lead to a higher payout.
CFPB Director Richard Cordray wrote a letter to President Trump six days after the Senate approved the repeal, stating “This rule is all about protecting people who simply want to be able to take action together to right the wrongs done to them.”