CFPB Hearing on Arbitration Tomorrow (Oct. 6, 2015)
The controversial prospect of new regulations for arbitration agreements will be front and center during a CFPB field hearing on the matter tomorrow morning in Denver. Such agreements are frequently used in the financial services sector to settle consumer disputes.
The CFPB in March released its 728-page “Arbitration Study: Report to Congress 2015” report, which was three years in the making. The report was a requirement of the Dodd-Frank Act to provide input and examines how arbitration clauses are used in six consumer finance markets: credit cards, checking accounts, prepaid cards, payday loans, private student loans and mobile wireless contracts. The study determined that “arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year,” Richard Cordray, CFPB director, said during a hearing when the study was released.
Tomorrow’s hearing will feature remarks from Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. Alan Kaplinsky, a partner at Ballard Spahr LLP, and chairman of the firm’s consumer financial services group will be providing financial services industry perspective. “Arbitration is mutually beneficial because it is faster, cheaper and more efficient than court litigation,” Kaplinsky said in a press release yesterday. “Arbitration is fair and time-tested and, in fact, benefits consumers more than class actions.”
The topic of arbitration and the CFPB’s findings came up during the CFPB’s Semi-Annual Report to Congress last week with Rep. Randy Neugebauer (R-Texas), chairman of financial institutions subcommittee, pointing out that the CFPB’s report “found that consumers who prevailed in arbitration recovered on an average of $5,300 compared with $32.35 obtained by the average class-action member in class action settlement. Can you walk me through how prohibiting arbitration is better when you look at those kinds of numbers? … Can you explain how your study supports the position that arbitration is a barrier to class action suits?” Rep. Neugebauer asked.
Cordray responded that arbitration cases were rarely pursued by individual consumers because there was very little money at stake for the individual. Also, the CFPB is working on rulemaking to prevent and “clean up” law violations and to get compensation to consumers, Cordray said.