OPINION:
The Consumer Financial Protection Bureau (CFPB), the arm of the government supposedly looking out for the interests of consumers, has trampled on consumers to deliver Christmas in July for the trial lawyers.
Last week, the CFPB and its director Richard Cordray finalized a rule removing the ability of companies to use arbitration to resolve individual consumer disputes as they relate to class action lawsuits. The new rule is far-reaching — it would limit a very large number of major financial institutions, including banks, credit card companies, student lenders, payday lenders, debt collectors and credit reporting companies from imposing any contractual arbitration clause that prohibits consumers from banding together in a class-action lawsuit.
While consumer advocates and progressives like Sen. Elizabeth Warren are doing victory laps, even the CFPB’s own flawed research justifying the rule recognizes the costs imposed by the change. More critically, the CFPB acknowledges that consumers are more likely to win compensation from arbitration than a long drawn-out class action lawsuit. Rather than recognizing the benefits arbitration brings to consumers, the CFPB has unleashed 1,200 new class action lawsuits a year on the American economy.
According to the CFPB’s own data, 87 percent of resolved class actions that did not deal with arbitration agreements did not benefit absent class members in the slightest. Why? Because most were dismissed by or settled with the sole plaintiff only. The bureau discovered that a mere 13 percent of class actions were approved for classwide settlement during the study period. In other words, the consumers who should be protected by the CFPB are better off with arbitration than class action lawsuits.
While consumers walk away damaged, trial lawyers walk away with a potential gold mine. The true winners in most class action lawsuits are the lawyers who bill millions for their time while consumers often get a coupon for a discount for a future purchase or a check for a few dollars. Abuse is rampant.
But Mr. Cordary has a long history of support from the trial bar and rumors suggest he might be looking to get back on the campaign trail when President Trump finally gets around to firing him.
During his time as attorney general of Ohio, Mr. Cordray endorsed a scheme where out-of-state litigators would sue Ohio’s pension fund. The lawyers walked away with millions while Mr. Cordray and his ilk found their campaign coffers filled with their contributions. Things got so bad, the state ultimately enacted legislation barring these arrangements.
Mr. Cordray’s actions at the CFPB mirror those in Ohio. Pensioners did not benefit when lawyers sued the state pension funds and consumers don’t benefit when the arbitration option is removed from the table.
Thankfully, Congress seems fully engaged in the matter. Sen. Ron Johnson, Wisconsin Republican and chairman of the Senate Homeland Security and Governmental Affairs Committee, and Rep. Mark Meadows, North Carolina Republican and chairman of the House Oversight and Government Reform Subcommittee on Government Operations, have both expressed support for rolling back this rule. The proven method they would use is a legislative tool known as the Congressional Review Act (CRA).
The CRA enables Congress to curb the regulatory state. When an administration finalizes a rule, a countdown of 60 legislative working days begins and Congress has that 60-day window of time to eliminate that rule through congressional resolution. Only a simple majority is needed, as it cannot be filibustered. Once a CRA is used to overturn a rule, that rule cannot be reissued at any time by any agency.
Congress and President Trump have done a great job rolling back many of the excesses of the Obama years. The CFPB rule is another one that should end up on the ash heap of history.
• Peter Weyrich is a conservative activist who has worked for a variety of pro-free market organizations including the Free Congress Foundation and Coalitions for America.
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