Attorney: Federal consumer protection agency should enforce laws, not create them

By Hanna Nakano | Oct 26, 2015

WASHINGTON, D.C. (Legal Newsline) - The Consumer Financial Protection Bureau is considering a new rule that would ban companies from using arbitration clauses that block class action lawsuits.

Arbitration clauses in contracts for most financial products the CFPB oversees – like credit cards, bank accounts and student loans – prevent consumers from engaging in group, or class action, lawsuits. In a statement, the CFPB wrote those clauses allow companies to "sidestep the legal system."

This consideration, however, would challenge a decision by the Supreme Court of the United States. In 2011, justices concluded in AT&T Mobility v. Concepcion that businesses that include arbitration agreements in contracts can require consumers to only bring individual disputes, rather than file class actions.

Attorney Henry Baskerville of Armstrong Teasdale in Denver, focuses in part on commercial litigation. He told Legal Newsline he thinks the CFPB should focus on enforcing laws, not making them.

“Any time a government agency seeks to undo 90 years of Supreme Court precedent, I think it should be done with great caution,” Baskerville told Legal Newsline.

“In my opinion, if citizens of the United States think that this is something that needs to be considered, then this process should be undertaken by Congress. I don’t think that a quasi-legislative body like the CFPB – a body that is beholden to nobody – should be engaging in what is essentially a legislative process.”

The CFPB maintains its consideration would “give consumers their day in court.”

“Consumer should not be asked to sign away their legal rights when they open a bank account or a credit card,” CFPB Director Richard Cordray, the former attorney general of Ohio, said in a statement. “Companies are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing.”

Baskerville argues that Concepcion already dealt with the rules for the types of consumer contracts the CFPB wants to change.

“If the CFPB thinks that particular companies are misusing their arbitration clauses, then perhaps the CFPB should focus on those companies, as opposed to enacting sweeping rules that ban the clauses entirely,” Baskerville said.

“Personally, I think we have too much frivolous litigation in the business world and any rule that encourages more should be approached cautiously.”

The CFPB says it has consulted with representatives from small businesses and continues to seek input from the public before continuing with the rule-making process. 

According to the CFPB’s statement, arbitration clauses would not be entirely banned, though clauses would have to “say explicitly that they do not apply to cases filed as class action unless and until the class certification is denied by the court or the class claims are dismissed in court.”

“Adaptation of this rule would no doubt spur many more class action lawsuits to be filed against corporations who have utilized class action waivers,” Baskerville said.

In an article written by Baskervile on JD Supra Business Advisor, he encourages company leaders to submit comments to the CFPB about how the rule would impact their companies.

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