Acting Comptroller of the Currency Keith Noreika said Monday that he would not interfere with the Consumer Financial Protection Bureau arbitration rule, backing off weeks of criticism that allowing consumers to sue financial institutions would threaten the safety and soundness of banks.

The Office of the Comptroller of the Currency missed a deadline Saturday to petition the Financial Stability Oversight Council to try and delay the rule from taking effect. In a press release, Noreika blamed the CFPB for not providing the data that would have allowed the OCC to finish its analysis of the impact of the rule.

"I will not petition the FSOC to stay the effective date of the rule," Noreika said. "Unfortunately, since the CFPB published the rule in the Federal Register prior to providing its data for our analysis and we have requested additional data in order to conduct a thorough review, the OCC cannot complete our thorough review in the limited time before a petition must be filed with the Financial Stability Oversight Council."

Keith Noreika, acting Comptroller of the Currency (left), and Richard Cordray, director of the Consumer Financial Protection Bureau.
Acting Comptroller of the Currency Keith Noreika (left) continued to criticize the CFPB's rule banning arbitration, continuing an unusual public spat with CFPB Director Richard Cordray. Bloomberg News

The CFPB declined to comment. The arbitration rule, released July 10, is scheduled to go into effect in March.

GOP lawmakers have threatened to kill the rule using the Congressional Review Act, which requires a simple majority vote to overturn within 60 legislative days. It remains unclear whether Republicans have the necessary votes or time on the legislative calendar.

Noreika urged Congress to act, issuing a warning about the rule's potential fallout.

"I hope Congress will act on this opportunity to preserve effective alternatives for consumers to resolve their disputes without lengthy and costly litigation," he said. "The rule may turn out to be the proverbial straw on the camel’s back."

The rule would prohibit the use of mandatory arbitration clauses that force consumers to resolve disputes. Over the past decade, financial companies have used mandatory arbitration clauses to prevent consumers from suing them in class-action lawsuits, typically for small dollar amounts. Banks point to data that shows consumers receive more relief faster by using the arbitration process, while consumer advocates say it prevents consumers from forcing changes at institutions by banding together in court.

Noreika, who took office just over two months ago, has waged an unusual public fight against CFPB Director Richard Cordray over the issue, though the OCC previously never raised objections to the rule prior to Noreika's appointment.

Noreika called the rule part of a "piling on" of the legal and regulatory burden on banks. He claimed financial institutions and consumers would suffer financially if the rule went into effect. He agreed with claims by banks that they may stop using arbitration to resolve disputes if the rule goes into effect because the CFPB would open the process to further scrutiny.

"Nothing so far diminishes my concerns that the rule may adversely affect the institutions within the federal banking system and their customers," Noreika said. "The final rule prevents banks from using an effective risk mitigation tool and will eliminate one option consumers have to resolve their concerns without the cost and delay of litigation."

"Ultimately," he added, "the rule may have unintended consequences for banking customers in the form of decreased availability of products and services, increased related costs, fewer options to remedy consumer concerns, and delayed resolution of consumer issues."

The OCC's economists will continue to analyze the data that the CFPB used in its arbitration study and will try to verify the CFPB's conclusions, said OCC spokesman Bryan Hubbard.

Congress has banned the use of arbitration in mortgages and in certain products sold to members of the military. Neither the OCC nor other regulators have suggested that a ban on arbitration in those markets had created a safety and soundness issue for financial firms.

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Kate Berry

Kate Berry

Kate Berry covers the Consumer Financial Protection Bureau for American Banker.