Director Corday has sent a letter to Keith Noreika, the Acting Comptroller of the Currency, responding to Mr. Noreika’s July 10 letter in which he stated that OCC staff had expressed safety and soundness concerns arising from the proposed arbitration rule’s potential impact on U.S. financial institutions and their customers.

In his response, Director Cordray stated that he “was surprised” to receive Mr. Noreika’s letter and that the CFPB had “consulted repeatedly” with OCC representatives and other prudential regulators regarding “prudential, market, or systematic objectives administered by such agencies” as required by Section 1022 of the Dodd-Frank Act (DFA).  Director Cordray claimed that “at no time during this process did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system” and that Mr. Noreika did not “express such concerns to [Director Cordray] when [they] have met or spoken.”  

Anticipating that Mr. Noreika’ letter could signal an attempt by the OCC to file a petition with the Financial Stability Oversight Council (FSOC) to set aside the final arbitration rule, Director Cordray stated that the points raised in Mr. Noreika’s letter “do not satisfy the statutory requirement that an agency ‘has in good faith attempted to work with the Bureau to resolve concerns regarding the effect of the rule on the safety and soundness of the United States banking system or the stability of the financial system of the United States’ and has been unable to do so.”  Under the DFA, satisfying the good faith requirement is a prerequisite to the filing of a petition by an agency with the FSOC to set aside a CFPB regulation.

Director Cordray also asserted that no basis exists for a claim that the arbitration rule puts the federal banking system at risk and provided a memorandum prepared by the CFPB’s Arbitration Agreements Rulemaking Team that “analyzes the suggestion in [Mr. Noreika’s letter] that the arbitration agreements rule…implicates the safety and soundness of the federal banking system.”

In his response, Director Corday highlighted several of the memorandum’s “key points” and stated that he believed those points “conclusively put to rest any safety and soundness concerns.”  Among the points highlighted by Director Cordray was that a majority of depository institutions operate without arbitration agreements and there was no evidence such banks and credit unions are less safe and sound than their counterparts with such agreements.  He also attempted to minimize the significance of the more than 500 million dollars that the CFPB has projected the rule will cost banks annually to defend against class action litigation.  

As we have previously observed, although the “majority” of banks may not use arbitration agreements, that is because most banks are small community banks in rural areas that are typically not the target of class action litigation.  However, the CFPB’s own data in its March 2015 empirical study of arbitration showed that 45.6% of the 103 largest banks with accounts representing 58.8% of insured deposits use arbitration clauses and it is those banks that are more likely to be the targets of class actions.