Consumer Financial Protection Bureau Director Richard Cordray on Tuesday slammed a Treasury Department report critical of the bureau's arbitration rule, saying the administration overlooked key parts of the regulation that are beneficial to consumers.
In a terse letter to Treasury Secretary Steven T. Mnuchin, Cordray wrote that Treasury misunderstood the underlying data supporting the arbitration rule and refuted specific allegations made by Treasury. The rule banned mandatory arbitration clauses that block consumers from suing banks as part of a class action.
"Treasury underestimates the benefits from class action settlements, underestimates the deterrence effect of class actions, overstates the cost of class actions and misstates the impact of the arbitration rule on individual arbitration," Cordray wrote. "In short, Treasury’s report ignores large parts of the rule — which address the very issues Treasury raises — and misunderstands much of the underlying data."
Yet the debate within the executive branch over the arbitration rule has been overshadowed this week by GOP efforts to overturn the regulation legislatively through the Congressional Review Act. Senate Republicans appeared to be close to having barely enough votes to roll back the contentious rule. A floor debate and possible vote were expected as early as Tuesday.
The Treasury report Monday sought to bolster the argument against the arbitration rule by claiming the CFPB did not fulfill its statutory requirements and that the rule should be both "in the public interest and for the protection of consumers."
But Cordray refuted Treasury's view.
"In fact, the arbitration rule strongly supports the bureau’s conclusion that it is in the public interest and for the protection of consumers," Cordray wrote.
The letter included a four-page memo from CFPB acting Deputy Director David Silberman addressing four issues where the CFPB said Treasury was in the wrong.
Silberman took issue with Treasury's claim that "on average only 4% of plaintiffs entitled to claim class action settlement funds actually do so."
The CFPB said the Treasury analysis ignores the fact that many class action settlements provide for automatic payments to consumers and have no requirement that consumers file a claim.
Silberman also discussed why "historical evidence and economic theory support the conclusion that exposure to class action litigation deters companies from violating the law."
The memo also alleged that Treasury overstated the costs of class action litigation and misstated the impact of the rule on individual arbitration.