WASHINGTON (Legal Newsline) - The U.S. House Financial Services Committee’s investigation into the Consumer Financial Protection Bureau’s proposed regulation of pre-dispute arbitration agreements is likely to intensify.
A spokeswoman for the committee told Legal Newsline Wednesday that the panel will have a hearing on the bureau’s recently released proposed rules “soon.”
Many contracts for consumer financial products and services contain arbitration clauses, which are a way to resolve disputes outside the court system.
Last week, Committee Chairman Jeb Hensarling, R-Texas, described the CFPB’s proposed rules -- which limit such clauses in financial contracts -- as a “big, wet kiss” to trial attorneys.
“Every day, Americans are seeing their liberties slip away as Washington inexorably grows larger, more intrusive, more distant, and more arrogant. Nowhere is this more evident than at the CFPB, where its unelected and unaccountable director is vested with the awesome power of the entire United States Congress when it comes to consumer financial products,” Hensarling said Thursday.
“Today, this de facto dictator has decided to restrict Americans’ ability to resolve financial contract disputes through arbitration. This move -- which will apply to some of the most common financial contracts including credit cards, checking accounts, and even cell phones -- essentially hands over the keys of the CFPB’s luxury office building to the wealthy, powerful, and politically well-connected trial lawyer lobby.”
Last month, ahead of the proposed rules’ release, the committee sent a letter to CFPB Director Richard Cordray indicating it is investigating the “examination and possible regulation by the [CFPB] of pre-dispute arbitration agreements in contracts for consumer financial products and services.”
In the letter, U.S. Rep. Sean Duffy, R-Wis., who serves as a member of the committee and chairman of the Subcommittee on Oversight and Investigations, requested the bureau turn over certain information.
His requests included:
- All communications relating to pre-dispute arbitration agreements between the CFPB and the American Association for Justice, National Consumer Law Center, National Association of Consumer Advocates, Alliance for Justice, and Public Justice;
- All internal CFPB communications relating to pre-dispute arbitration agreements;
- All draft reports concerning arbitration agreements; and
- All records relating to the SBREFA (Small Business Regulatory Enforcement Fairness Act) process used in considering any actions pertaining to pre-dispute arbitration agreements.
The requested information was due to the panel May 4. A committee spokeswoman would not say whether it received a response, instead referring to the bureau.
The CFPB, an independent agency of the federal government responsible for consumer protection in the financial sector, declined to comment on the panel’s requests.
The bureau released its set of proposed rules prohibiting mandatory arbitration clauses that prevent class action lawsuits in conjunction with a field hearing in Albuquerque last week. The field hearing, held Thursday, was the third such hearing it has held on arbitration. The first was held last March and the second was held in October.
Under the CFPB’s proposal, companies would be prohibited from putting mandatory arbitration clauses in new contracts.
Companies would still be able to include arbitration clauses in their contracts. However, for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court.
The proposal would provide the specific language that companies must use.
The proposal also would require companies with arbitration clauses to submit to the CFPB claims, awards and certain related materials that are filed in arbitration cases. This would allow the bureau to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers.
The bureau also is considering publishing information it would collect in some form, so the public can monitor the arbitration process as well.
The American Association for Justice, formerly the Association of Trial Lawyers of America, said it supports the proposed rules, but would like to see them further strengthened.
Hensarling, along with fellow House Republicans and industry groups and legal experts, question the bureau’s rationale.
The committee chairman went as far as to accuse the CFPB of “abusing power that it never should have had in the first place.”
“It is past time for Congress to strip the CFPB of its unfettered rule-making authority and return it to the elected representatives of ‘We the People,’” he said.
Hensarling contends the bureau’s 2015 study -- the basis for the proposed rules -- has been met with “widespread criticism,” from academics and industry alike.
The CFPB study, the results of which were released in March 2015, indicated that arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions.
The report found that, in the consumer finance markets studied, very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements.
The bureau’s report also found that more than 75 percent of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers, and fewer than 7 percent of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
Hensarling argues the study failed to make “useful comparisons” between the outcomes of the various permutations of individual and class litigation versus similar claims under arbitration, as well as awards versus settlements.
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.