WASHINGTON — The Treasury Department released an 18-page report Monday saying that the Consumer Financial Protection Bureau rule restricting arbitration agreements is not in the public’s best interest.
The report said the rule, which was released in July, would “impose extraordinary costs” including $500 million in legal fees mostly for lawyers that bring forward class-action lawsuits.
“The Bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest — its two statutory mandates,” the report said.
The CFPB rule followed a 2015 bureau study of arbitration agreements that was mandated by Dodd-Frank. The agency said the results of the study concluded that the rule would help consumers, a claim that Treasury and the Office of the Comptroller of the Currency have both challenged.
“The Bureau offers no analytical support for its claim to move the covered financial industries closer to regulatory efficiency,” the Treasury report said. It added that the bureau’s own study should have indicated that the rule would not help consumers.
“According to the Bureau’s own data, only 13% of consumer class action lawsuits filed result in class-wide recovery — meaning that in 87% of cases, either no plaintiffs or only named plaintiffs receive relief of any kind,” Treasury said.
Treasury also said the CPFB’s study was flawed and did not consider the impact of a new regulation.
“The Bureau assessed the need for ongoing future regulation by examining the state of the world before the Bureau began its enforcement function,” said the report.
The report goes on to argue that the CFPB could have imposed less costly alternatives or could have imposed the rule “on a trial basis” and evaluate its effects after.
Senate Republicans are in the process of trying to nullify the arbitration rule by using a procedure called the Congressional Review Act. The House passed the measure and the Senate has until mid-November to pass a similar bill.
Acting Comptroller of the Currency Keith Noreika has also been critical of the CFPB rule and its analysis. An industry lawsuit led by the U.S. Chamber of Commerce has also challenged the CFPB’s rule.
But Sam Gilford, a spokesman for the CFPB, said the Treasury report just rehashed industry arguments that were already "analyzed in depth and solidly refuted in the final rule."
"Our rigorous analysis of the costs and benefits of the rule found that mandatory arbitration clauses allow companies to avoid accountability for breaking the law and cost consumers billions of dollars by blocking group lawsuits," Gilford said in an emailed statement. "Banks, credit unions, and other companies file class action lawsuits to pursue justice when they are harmed as a group, and our rule restores consumers’ right to do the same."