Republican Congressman Randy Neugebauer, who chairs the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit, and Democratic Congressman W. Lacy Clay, the Subcommittee’s Ranking Member, have sent a letter to Director Cordray asking the CFPB “to consider providing a safe harbor in any final rule that will preserve the use of arbitration as a viable dispute resolution forum.”
In their letter, the Congressmen comment that despite the fact that the CFPB’s arbitration study “found that arbitration is generally faster, more convenient, and results in better outcomes for consumers than in-court litigation,” the CFPB’s proposed arbitration rule seeks to expand the use of class actions by prohibiting class action waivers in arbitration agreements. They point out that many observers have concluded that such a prohibition “will result in financial institutions dissolving their consumer-friendly arbitration programs as they are forced to bear significantly increased exposure associated with class action litigation. ” (We are among the observers who have expressed the opinion that the CFPB’s proposal would dramatically change many firms’ cost-benefit analysis enough to convince them to stop using arbitration for individual claims as well.) The Congressmen state that this outcome “would leave many American consumers seeking to remedy small dollar disputes without a viable forum for resolution.”
To avoid that outcome, the Congressmen ask the CFPB to consider providing a safe harbor in its final rule that would allow companies to continue to use class action waivers in their arbitration agreements. They suggest that the safe harbor might require the adoption of certain pro-consumer features, such as the best practices required by the American Arbitration Association. They also suggest that a safe harbor could require companies to use model arbitration agreements developed by the CFPB.