CFPB Draws Praise From Unlikely Sources

By Gregory Roberts

Aug. 26 — The Consumer Financial Protection Bureau (CFPB) has been getting some praise from unlikely sources: the very industries it regulates, who frequently chafe under its restraint.

Public comments filed by industry groups criticizing a proposed CFPB rule to limit the use of forced-arbitration clauses in consumer contracts cited the agency’s success as justification for why such a rule isn’t necessary.

“Government enforcement actions are effective in addressing consumer harm and changing corporate behavior,” wrote a trio of trade organizations—the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable—in an Aug. 22 letter commenting on a proposed CFPB rule to limit the use of forced-arbitration clauses in consumer contracts.

“The strength of the Bureau's enforcement powers in moderating corporate behavior is enhanced due to the premium that companies place on maintaining good relations with their customers and their reputation,” the bankers wrote.

“As the Bureau is well aware, being the subject of a Bureau enforcement or supervisory action, especially as it is quickly, widely, and repeatedly circulated through social media forums and the press, serves to ‘shame' companies into compliance and deters unlawful and questionable conduct,” the letter says.

Chamber Joins in Praise

The U.S. Chamber of Commerce sounded a similar note in its comment letter, noting the bureau's success in winning $11.4 billion in relief for more than 25 million aggrieved consumers since Congress created the CFPB in the 2010 Dodd-Frank Act.

“[A]ppropriate government enforcement plays a significant role in protecting consumers,” the Chamber wrote. “That role is liable to increase substantially given the Bureau's robust supervision and enforcement authority — and its implementation of that authority.”

In citing the effect of the bureau's “very substantial enforcement and supervisory actions in uncovering and detecting wrongdoing,” the Chamber said, “Of course, not all government enforcement actions are brought against covered persons who actually engaged in wrongdoing.” And while recognizing the ability of the bureau to ferret out corporate misdeeds, the Chamber added, “if anything, there are questions about whether the agency has gone too far.”

Indeed, the Chamber recently filed a legal brief siding with The J.G. Wentworth Co. in a court case challenging the CFPB's authority over the purchase of structured settlements and annuities.

Another instance of CFPB overreach, the Chamber and the bankers said, is the proposed arbitration rule itself.

The arbitration clauses are inserted into contracts by credit-card issuers and many other companies to bar consumers from filing class-action lawsuits, requiring instead that disputes be resolved in private arbitration. Dodd-Frank directed the CFPB to study the controversial provisions and said the bureau could prohibit them if it found a ban would be in the public interest and would protect consumers, provided the regulation is “consistent with the study.”

Rule Fails Test, Industry Says

The Chamber and the bankers argue at length in their comment letters that the proposal fails to meet any of those requirements.

The CFPB received nearly 13,000 comments on the proposed rule by the Aug. 22 deadline.

Alan Kaplinsky, who helped write the bankers' letter and heads the Consumer Financial Services Group at Ballard Spahr LLP, told Bloomberg BNA that he does not think the CFPB will digest the comments and issue a final rule until early or mid-2017.

He's not optimistic the bankers' comments and others like it will have much effect, he said.

“I think the bureau has been on a mission to rein in the use of arbitration and particularly the use of class-action waivers, and I don't think they're going to let anything get in the way of that,” he said.

Kaplinsky played a central role in promoting the use of the arbitration clauses, going back to the late 1990s. He predicted that once the final rule is issued, it will be challenged in federal court.

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