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President-elect Donald Trump has vowed to roll back various regulations for the financial services and housing industries. While the reforms he has talked about—such as overhauling the Dodd-Frank Act or reforming the CFPB—would likely take more time, there are some areas within the CFPB’s proposed rules where the impact could be felt more immediately.
One such area is the CFPB’s proposed rule to limit the use of pre-dispute arbitration clauses in business contracts, which caused a major controversy within the financial services industry when it first announced in October 2015 and then subsequently officially introduced in May 2016.
The proposed rule to limit arbitration clauses is one rule that might not pass under a Trump Administration. The rule would essentially open the door for consumers to file class action lawsuits against financial services providers. Supporters of the rule say it is necessary in order to give consumers “their day in court,” while detractors of the rule claim that it creates a windfall for trial lawyers, and that only a small percentage of class action suits ever make it to court—and that the average payout per consumer in a class action suit is only $32.
President-elect Trump himself is due in court on November 28 to defend himself against accusations of fraud surrounding his Trump University venture from a decade ago, according to Time.
Like with most issues surrounding the CFPB and Dodd-Frank, the issue of whether or not to limit arbitration clauses is largely split right down the middle with Democrats in favor of the rule and Republicans against it—which makes it unlikely now that it will pass under a Republican Administration with Republicans holding the majority in both the House and the Senate.
Even without the Trump University lawsuit, the rule was bound to face severe opposition, likely in the form of litigation, before it passed. Several groups have spoken out against the proposed rule. In August, the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable created a 42-page rebuttal for the proposal, stating, "The proposed rule does not benefit society or consumers . . . Both lose because, as taxpayers, consumers will have to pay for additional resources needed by courts to accommodate the permanent influx of 6,042 additional class actions every five years. They lose because the cost of defending and settling cases—estimated to be between $2.62 billion and $5.23 billion every five years (100 additional lawsuits each month)—will be passed along to consumers in whole or in part in the form of higher prices or reduced services.”
Credit unions are another group that has been petitioning for regulatory relief from the CFPB since the Bureau’s inception. On November 11, Jim Nussle, CEO of the Credit Union National Association, wrote a letter to “to urge the Consumer Financial Protection Bureau (CFPB) to impose an immediate moratorium on all of its pending and future rulemakings, other than those providing corrective regulatory relief. The Credit Union National Association (CUNA) represents America’s credit unions and their more than 100 million members.”
In May, the House Subcommittee on Financial Institutions and Consumer Credit determined in a hearing that the CFPB’s proposed rule, if it passes, will result in higher costs to consumers and less access to financial products.
The rule has gained some support—in August, Attorneys General in 15 states and Washington, D.C. wrote a letter urging the CFPB to adopt its proposal to limit the use of arbitration clauses in business contracts.
“Consumers must have reasonable access to courts when they have been wronged by their bank,” D.C. Attorney General Karl Racine said. “The ever-increasing use of binding arbitration agreements has severely reduced the ability of consumers to protect themselves by going to court. We are urging the CFPB to adopt these rules to provide much needed oversight and help retain consumers’ access to the justice system.”
