Acting Comptroller of the Currency Keith Noreika urged senators on Friday to overturn the Consumer Financial Protection Bureau's arbitration rule, arguing in an op-ed column that allowing consumers to sue financial institutions in class actions would raise credit costs and harm small banks.
In an editorial in The Hill newspaper, Noreika wrote that the rule should not go into effect unless a ban on arbitration clauses results in better treatment for consumers.
"Senators must ask whether the rule achieves its intended purpose of increasing compliance with consumer protection laws and improving the treatment of consumers without creating other significant harm and increasing costs," Noreika wrote. "In my view, the CFPB has failed to provide the data to support that case and failed to disclose the costs to consumers that will likely result from the rule's implementation."
The CFPB rule would prohibit financial firms from requiring that consumers use arbitration to settle disputes, freeing them to band together in class-action suits. The arbitration rule, released July 10, is scheduled to go into effect in March.
Republicans in Congress have threatened to kill the arbitration rule using the Congressional Review Act, an obscure law that allows Congress to reject an agency's regulation by a majority vote within 60 legislative days of its release. But the Senate has yet to vote on a repeal.
Noreika has waged an unusual public fight against the arbitration rule and CFPB Director Richard Cordray, essentially pitting the heads of two regulatory agencies against each other.
Noreika said community bankers are concerned about the "increased costs of fighting spurious lawsuits," and that the "the cost of defending specious legal claims and the increased risk of such legal battles could threaten their very existence."
In July, Noreika asked the CFPB to delay the rule, citing concerns about how it would affect the safety and soundness of banks.
Economists from the Office of the Comptroller of the Currency conducted their own review of the CFPB’s arbitration rule and found an 88% chance that the cost of credit would rise as a result of the rule. However, the OCC was unable to complete its review of the arbitration rule before the rule was published in the Federal Register.