Despite a heated exchange of letters between the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency asking for the delay of the newly announced arbitration rule, the rule will carry on as planned and be published in the Federal Register this week.
The issue dates back to earlier this month when the CFPB revealed its new rule to ban companies from using mandatory arbitration clauses, allowing consumers to participate in class action lawsuits.
For added context, the new rule mainly pertains to consumer financial products like credit cards and bank accounts that have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. Mortgages, however, are not included since Congress already prohibits arbitration agreements in the residential mortgage market.
Regardless of the exchanges written out below, the rule will be published in the Federal Register on Wednesday. The rule will be effective date 60 days after it is published in the Federal Register and applies to contracts entered into more than 180 days after that.
But, if it were up to the Acting Comptroller Of The Currency Keith Noreika, the rule wouldn’t be published just yet.
Noreika quickly responded to the controversial rule in a letter to CFPB Director Cordray requesting the CFPB share with Office of the Comptroller of the Currency data used to develop and support its proposed final rule banning class-action waivers in arbitration agreements.
Noreika asked that the two “agencies work together to resolve potential safety and soundness concerns with the proposal.”
He also assured the CFPB that he directed OCC staff to work expeditiously with CFPB staff to examine the data once they receive it and determine if their concerns are allayed by the data or to work with CFPB staff to resolve any safety and soundness concerns that persist.
The CFPB didn’t see eye-to-eye with the OCC on the issues, with Cordray noting in his response letter that he was surprised to receive the letter from Noreika.
“As you may be aware, the issuance of the rule marked the conclusion of a multi-year process that included the bureau’s completion in March of an arbitration study that was required by law. The rulemaking process itself spanned more than two years.”
“At no time during the process did anyone from the OCC express any suggestion that the rule that was under development would threaten the safety and soundness of the banking system. Nor did you express any concerns to me when we have met or spoken.”
Ultimately, Cordray wrote that Noreika’s request came too late. “Until I received your letter this week, the OCC has not expressed any interest in the data relating to that rule.”
Noreika, a week letter, sent another letter to Cordray asking for the data again. But this time, he added in a request to delay the publication of the Final Rule in the Federal Register “until his staff has had full and fair opportunity to analyze the CFPB data.”
Once again, and only a couple days before the Federal Register is slated to publish the rule, Cordray denied the request in a letter to the OCC, questioning “why it would be appropriate to distort the Financial Stability Oversight Council process to review a claim that is so plainly frivolous, when congressional and judicial forums are available to pursue such matters.”
“I continue to fail to see any plausible basis for your claim that the arbitration rule could somehow affect the safety and soundness of the banking system,” said Cordray.
And with Cordray’s response, the door shut on the possibility of the rule not making it into the Federal Register. But this doesn’t mean the battle over the arbitration rule is over. A separate option to get rid of the rule is also floating around.
Senator Tom Cotton, R-Ark., recently said he started the process of rescinding this rule using the Congressional Review Act. “The last thing Americans need is more anti-business regulation that will prompt frivolous lawsuits while hurting consumers," he said.
And he isn’t the only Republican against the rule. Financial Services Committee Chairman Jeb Hensarling, R-Texas, said, “This bureaucratic rule will harm American consumers but thrill class action trial attorneys.”
Hensarling backed Noreika in his comments, saying, “In releasing this rule today, Director Cordray ignored a prior request by the acting Comptroller of the Currency that he work with the OCC to resolve its potential safety and soundness concerns.”