WASHINGTON (Legal Newsline) - Two weeks after a federal consumer protection agency took steps to finalize a controversial rule regarding class action lawsuits, the U.S. House of Representatives has disapproved by acting to kill it.
On July 10, the Consumer Financial Protection Bureau announced it would finalize a rule that prohibits certain financial service companies from avoiding class action lawsuits by steering disputes to arbitration, but the Republican-led House voted on a measure to overturn the actions of the CFPB on July 25.
The rule, which some say protects the interests of consumers unaware they are agreeing to those clauses but has also been called a gift for class action lawyers, won’t be finalized on its planned date of Sept. 18 – or ever – if the House has its way. The Senate will take up the issue next.
The CFPB is an agency that was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act and has since been headed by former Ohio Attorney General Richard Cordray, a Democrat.
The vote was 231-190, with only one Republican voting against and no Democrat voting for.
The chair of the House Financial Services Committee said before the vote that the CFPB’s actions stand to benefit trial lawyers and not consumers who, on average, actually recover far more in arbitration than they do from class action settlements.
“(A)nd now, this rogue agency, the Orwellian-named CFPB, decides to promulgate a rule, and it’s not even an agency,” said Rep. Jeb Hensarling, a Republican from Texas.
“(O)ne unelected, unaccounted individual has decided that Americans no longer have the right to contract – they no longer have the right to decide that they would prefer to arbitrate instead of go through a class action lawsuit.
“(L)et’s let people know what this is truly about. What this is about is the Trial Attorneys Relief Act. They’re the voices we’re hearing on the other side of the aisle, and we’re hearing loud and clear because what we know is that in class action lawsuits, consumers end up with almost nothing and the trial lawyers make out like bandits.”
Hensarling referred to the agency’s structure, which was recently called unconstitutional by a three-judge panel of U.S. Court of Appeals for the District of Columbia. The case is being reheard by the entire D.C. Circuit.
The issue is whether it is unconstitutional that the President can’t remove the CFPB director at will. The Trump Administration is supporting being able to do so.
Rep. Suzanne Bonamici, a Democrat from Oregon and former consumer protection lawyer, voiced her opposition to the House measures before the vote.
“I have no problem with arbitration clauses when they are agreed to by parties with equal bargaining power,” she said.
“But we have seen what happens when institutions include nonnegotiable forced arbitration clauses in the fine print of consumer contracts.
“Private student loan providers, payday lenders, credit card companies and banks have consumers sign away their rights to access the court system when they’re cheated. The CFPB rule will address that inequity and provide consumers with a remedy.”
The class action waivers at issue send disputes between companies and consumers to arbitration. In 2015, the CFPB told Congress that consumers are being shortchanged in the process.
The study showed the average recovery for a consumer who prevails in arbitration is more than $5,000, while the average class action settlement provides only $32 while attorneys pocket more than $424,000, on average.
But the ability for plaintiffs to join together in a class action is important, Cordray feels. Class action waivers deny consumers their day in court, help companies avoid paying out refunds and allow them to continue harmful practices, the CFPB says.
“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” he says.
An attorney who pioneered the use of pre-dispute arbitration recently told Legal Newsline that the rule is simply a large gift to trial lawyers.
“The CFPB has decided to overstate the value of class actions for consumers, contrary to the CFPB’s own data in its study, which demonstrates unequivocally that the only real beneficiaries of class action litigation are the plaintiffs’ class action lawyers,” Alan Kaplinsky, of Ballard Spahr, told Legal Newsline.
From Legal Newsline: Reach editor John O’Brien at jobrienwv@gmail.com.