Finance groups file lawsuit against CFPB arbitration rule

4 reasons why the rule should be set aside

The latest attack on the Consumer Financial Protection Bureau’s arbitration rule comes from the finance industry, with several finance groups and chambers of commerce filing a lawsuit challenging the rule.

According to a Ballard Spahr blog on the lawsuit by Mark Levin and Alan Kaplinsky, the lawsuit seeks to stay the implementation of the arbitration rule.

The U.S. Chamber of Commerce, American Bankers Association, the Consumer Bankers Association, Financial Services Roundtable, American Financial Services Association, Texas Association of Business, Texas Bankers Association, and nine chambers of commerce located throughout Texas filed the lawsuit.

The preliminary statement in the rule said that the rule is invalid and should be set aside for four reasons:

  1. The rule is the product of, and is fatally infected by, the unconstitutional structure that Congress gave the CFPB when it created the Bureau in the Dodd-Frank Wall Street Reform And Consumer Protection Act (“the Dodd-Frank Act”).
  2. The rule violates the Administrative Procedure Act (“APA”) because the CFPB failed to observe procedures required by law when it adopted the conclusions of a deeply flawed study that improperly limited public participation, applied defective methodologies, misapprehended the relevant data, and failed to address key considerations.
  3. The rule also violates the APA for the related reason that it runs counter to the record before the bureau and fails to take account of important aspects of the problem it purports to address, making it the very model of arbitrary and capricious agency action.
  4. The rule violates the Dodd-Frank Act because it fails to advance either the public interest or consumer welfare: it precludes the use of a dispute resolution mechanism that generally benefits consumers (i.e., arbitration) in favor of one that typically does not (i.e., class-action litigation).

Outside of the finance industry challenging the rule, Congress is also in the process of potentially overturning the rule. According to the most recent update, Senate was seen as likely to vote on repealing the arbitration rule soon since the Republican push for healthcare reform is seemingly over for this year.

The arbitration 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.

The CFPB explained that this new rule is meant to deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

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