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Financial Services Law Insights and Observations

Treasury Releases Report Criticizing CFPB Arbitration Rule

Federal Issues Agency Rule-Making & Guidance Department of Treasury CFPB Arbitration

Federal Issues

On October 23, the Treasury Department released a report criticizing the CFPB’s arbitration rule (Rule)—finding the Rule did not satisfy the statutory prerequisites under the Dodd-Frank Act for banning arbitration agreements. Specifically, the report concludes that “the Bureau has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or the public as a whole.” Like the OCC’s findings (as covered by InfoBytes previously), the Treasury Department found that the Rule will result in increased costs to consumers as affected businesses are unlikely to absorb the new financial costs associated with increased class action litigation. Moreover, the report notes that (i) the CFPB’s data shows that the majority of class action lawsuits deliver no relief to consumers; (ii) that despite the rule’s high costs, the CFPB did not demonstrate the Rule would help increase compliance with federal consumer laws; and (iii) the CFPB failed to consider less burdensome alternatives to the rule.

In addition to the Treasury Department, the Rule is also under scrutiny by Congress and the subject of a lawsuit filed by the U.S. Chamber of Commerce and other financial industry groups (previously discussed in InfoBytes here and here, respectively).

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