Treasury Body Slams CFPB’s Arbitration Analysis

October 24, 2017 at 9:44 am Leave a comment

The CFPB proudly proclaims that it is a data driven regulator for the 21st Century. So you can bet it went apoplectic yesterday when it received a Treasury analysis of its arbitration rule. The report is a well-reasoned explanation of why the CFPB over-stated the value of class action lawsuits and did so at the expense of financial institutions and their members who will ultimately pay the cost for frivolous class action litigation.

In the Dodd-Frank Act, Congress authorized the CFPB to ban the use of arbitration agreements in consumer financial contracts if it concluded that such restrictions were in the public interest and for the protection of consumers. The Bureau responded to this mandate with a 2015 report that laid the ground work for its rule earlier this year banning arbitration clauses that prohibit consumers from joining class action lawsuits.

What makes the report particularly damning is that it uses the CFPB’s own analysis to demonstrate how flawed the CFPB’s reasoning is. For example, according to the Bureau’s own data, only 13% of consumer class action lawsuits filed result in class-wide recovery—meaning that in 87% of cases, either no plaintiffs or only named plaintiffs receive relief of any kind. In addition, on average, only 4% of plaintiffs entitled to claim class settlement funds actually do so. This suggests that consumers value class action litigation far less than the Bureau believes they should. In fact, according to the Treasury, plaintiffs who do receive claims from class action settlements receive slightly more than $32.

The Treasury’s report amounts to a legal argument that the Bureau did not comply with its legal obligations when it decided to ban the use of arbitration clauses that prohibit class action lawsuits by consumers in financial transactions. In fact, according to the Treasury, “The Bureau has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or to the public as a whole. Based on the Bureau’s own data, it is far more likely that the Rule will generate massive economic costs—borne by businesses and consumers alike—that dwarf the speculative benefits of the Bureau’s theorized increase in compliance.”

New York Releases Paid Family Leave Form

I just wanted to give you a heads up, courtesy of this blog by Bond, Schoeneck & King that New York State released the forms to be used by employees applying for paid family leave under New York State law. I get the sense that some of you are pulling the blanket back over your head when it comes to getting ready for this new mandate, but this of course is not a good idea. Especially for your smaller credit unions, which could experience an increase in the number of employees that have to be replaced on a temporary basis.


Entry filed under: General, New York State. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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