In a mistaken attempt to justify the CFPB’s arbitration rule, supporters are pointing to the need to protect the rights of military servicemembers and the recent Equifax data breach.  On September 20, Democratic Senator Jack Reed will host an event entitled “The CFPB Forced Arbitration Rule,” which is described as a briefing for Senate staff and press members.

According to the event announcement, the participants will discuss how the CFPB’s arbitration rule “restores the rights of servicemembers, military families and consumers.”  Obviously overlooked (or ignored) by Senator Reed and the other participants is the fact that federal law already prohibits the use of arbitration agreements in most consumer credit contracts entered into by active-duty servicemembers and their dependents.  More specifically, this prohibition is contained in the Military Loan Act.

Since 2007, creditors have been prohibited by the MLA from including arbitration agreements in contracts for consumer credit extended to active-duty service members and their dependents where the credit is a closed-end payday loan with a term of 91 days or less in which the amount financed does not exceed $2,000, a closed-end vehicle title loan with a term of 181 days or less, or a closed-end tax refund anticipation loan.  In 2015, the Department of Defense adopted a final rule that dramatically expanded the MLA’s scope.

The final rule extended the MLA’s protections to a host of additional products, including credit cards, installment loans, private student loans and federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans.  The rule already became effective for transactions or accounts consummated or established after October 3, 2016 for most products, and will become effective for credit card accounts consummated or established after October 3, 2017.

The event announcement also indicates that there will be a discussion of how the arbitration rule impacts Equifax customers.  As we have previously commented, the attempt of consumer advocates to link the Equifax data breach to the CFPB’s arbitration rule is a tempest in a teapot.  The breach has nothing to do with the arbitration rule.  While the rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.

Professor Jeff Sovern has responded to our recent blog, “Senator Warren’s Numbers Don’t Add Up,” with a blog of his own.  He does not contest the main point of our blog, which was that Senator Warren’s claim that consumers don’t do well in arbitration is wrong.  He admits he found our discussion “interesting.”  We appreciate the compliment.

Professor Sovern does take issue with the short discussion near the end of our blog in response to Senator Warren’s remark that consumers rarely pursue individual arbitration.  We explained that most consumers resolve their disputes through companies’ informal dispute resolution procedures and also through on-line complaint portals provided by federal and state agencies.  “Is it true,” he asks, and where are the “statistics”?  Well, one such statistic is on the front of the CFPB’s website: the CFPB, through its on-line complaint portal, has handled more than 1.2 million customer complaints, and 97% of consumers get timely replies when the CFPB sends their complaints to companies.  In fact, according to the CFPB, its consumer complaint portal helps generate broad relief in the marketplace:

How one complaint can help millions

97% of complaints sent to companies get timely responses.

By submitting a complaint, consumers can be heard by financial companies, get help with their own issues, and help others avoid similar ones. Every complaint provides insight into problems that people are experiencing, helping us identify inappropriate practices and allowing us to stop them before they become major issues. The result: better outcomes for consumers, and a better financial marketplace for everyone.

What do class actions accomplish for consumers that is better than this?  Professor Sovern concedes that few putative class members submit settlement claim forms even when they are entitled to payment.  That is a problem that “bedevils class action claims,” he admits.  He also argues that “class actions … deter misconduct in a way that arbitration claims don’t.”  But you don’t need arbitration or class actions to deter alleged misconduct when agencies such as the CFPB are already doing so through their enforcement activities, without charging a hefty attorneys’ fee.  Here, again, the first page of the CFPB’s website states that its enforcement actions have brought more than $11.9 billion in relief to more than 29 million consumers.  And the CFPB maintains a public database of the consumer complaints it receives.  That is also a significant deterrent.

Finally, Professor Sovern criticizes our argument that the number of consumer arbitration filings is attributable in part to the fact that the CFPB has not spent any resources educating consumers about arbitration.  He states, “I am not aware of any evidence that consumers can be usefully educated about arbitration.”  That is a surprising position for a legal educator to take.  Unlike Professor Sovern, we are optimistic that consumers can be “usefully educated about arbitration” and that more education would help consumers recognize the many benefits that arbitration can provide if other means of resolving a dispute are not successful.

The CFPB’s final arbitration rule was the subject of an article by Ballard Spahr partners Alan Kaplinsky and Mark Levin recently published by The Regulatory Review, a publication of the University of Pennsylvania Law School’s Penn Program on Regulation.

The article, The CFPB’s Final Arbitration Rule Run Amok, discusses the final rule’s failure to satisfy the Dodd-Frank Act’s limits on the CFPB’s arbitration rulemaking authority and its promotion of an untethered public policy favoring class action litigation that benefits only class action lawyers.


In a press release issued earlier this week, Senator Elizabeth Warren argued that the CFPB’s arbitration rule should not be repealed under the Congressional Review Act because consumers recovered “in only 9 percent of the disputes that arbitrators resolved” and the average award “is only 12 cents for every dollar they claimed.”  Senator Warren attributed those statistics to a “fact sheet” published on August 1, 2017 by the Economic Policy Institute (“EPI”) titled “Correcting the Record — Consumers fare better under class actions than arbitration.”  Unfortunately, these statistics obfuscate the record, rather than correcting it, and create the misimpression that consumers fare very poorly in arbitration compared to class action litigation.  That is not the case.  Let’s look at the math:

  1. In its 2015 study of consumer arbitration, the CFPB examined a total of 1847 consumer financial services arbitrations administered by the American Arbitration Association filed between 2010 and 2012.
  2. For purposes of analyzing substantive arbitration outcomes, the CFPB eliminated cases filed in 2012, leaving a total of 1060 arbitrations filed in 2010-2011.
  3. Of these 1060 arbitrations, 246 arbitrations (23.2%) settled, 362 arbitrations (34.2%) ended in a manner consistent with settlement and 111 arbitrations (10.5%) ended in a manner inconsistent with settlement although it is possible that settlements occurred. The CFPB did not include these “settlement” arbitrations in its analysis of substantive arbitration outcomes because “[t]here are almost no consumer financial arbitrations for which we know the terms of settlement.”  However, there were six credit card arbitrations where the CFPB did know the settlement terms.  One settlement provided for a monetary payment to the consumer, and three settlements provided for an amount of debt forbearance.
  4. In the remaining 341arbitrations, arbitrators made a determination regarding the merits of the parties’ disputes. Of those 341 arbitrations, there were 161 arbitrations in which an arbitrator rendered a decision with respect to a consumer’s affirmative claim against a company.  This means that 180 of the 341 arbitrations involved disputes in which consumers did not assert affirmative claims — i.e., debt collection claims by a company against a consumer.
  5. In three of the 161 arbitrations, CFPB could not determine the results. Of the remaining 158 arbitrations, arbitrators provided some kind of relief in favor of consumers’ affirmative claims in 32 cases (20.3%).  In these 32 cases, the average award to the consumer was about $5,400.
  6. Let’s turn now to the assertion by Senator Warren and EPI that consumers recovered in only “9 percent” of the disputes. No explanation was given for that number, but it apparently was derived by dividing the number of cases in which consumers obtained relief on their affirmative claims (32) by the 341 cases in which the arbitrator made a determination regarding the parties’ disputes. That was Mistake # 1.  180 of the 341 arbitrations were debt collection arbitrations by companies against consumers, so they were not arbitrations in which consumers were even seeking affirmative relief from the company.  Leaving those 180 cases in the equation is mixing apples and oranges.  To compare apples to apples, the 32 cases in which the arbitrator actually provided affirmative relief to consumers should have been divided by the 158 cases in which the consumer was actually seeking affirmative relief.  That percentage is 20.3%, as the CFPB indicated in its study.  So the statement that consumers recovered in only “9 percent” of the disputes is incorrect.
  7. Mistake # 2 was omitting any consideration of the 719 consumer arbitrations that settled or may have settled, according to the CFPB. Just because a case settles does not mean that the consumer did not come away with a monetary payment or some amount of debt forbearance.  In fact, the opposite is likely true — a case settles because the parties found a way to compromise their positions and resolve their dispute.  In fact, as noted above, the CFPB was able to identify six credit card arbitration settlements, and in four of them consumers did receive either a monetary payment or an amount of debt forbearance.  Indeed, all of the CFPB’s statistics on class actions in its arbitration study were derived from class action settlements, since none of the class actions studied by the CFPB actually went to trial.
  8. This means that the data field for measuring consumer success in arbitrations was actually 749 arbitrations — 32 arbitrations in which consumers actually obtained relief on affirmative claims, plus 717 arbitrations that settled (719 minus the two credit card settlements in which consumers did not obtain relief). Therefore, of the 1060 arbitrations filed in 2010-2011, consumers either did or may have come away with a monetary payment or some amount of debt forbearance in as many as 71% of the arbitrations.
  9. Notably, Professor Christopher Drahozal, who served as a Special Advisor to the CFPB in connection with its arbitration study, also conducted a study of more than 300 American Arbitration Association arbitrations in 2009 for the Northwestern University Searle School of Law.  He concluded that consumers won relief in 53.3% of the arbitrations.

With respect to the statement in the press release that the average consumer award “is only 12 cents for every dollar they claimed,” once again no consideration was given to amounts received by consumers in settlement, which certainly would have increased this calculation.   Notably, the CFPB did conclude that in arbitrations in which the consumer asserted an affirmative claim against the company and the arbitrator reached a decision on the merits, consumers recovered 57 cents for every dollar claimed.  The CFPB also concluded that consumers obtained debt forbearance in 19.2% of disputes in which debt forbearance was sought and the arbitrator made a decision.  The average debt forbearance was $4,100, which was 51 cents of each dollar of debt forbearance claimed.  None of these statistics was mentioned in Senator Warren’s press release or the EPI fact sheet.

Another statistic in the press release and fact sheet that bears scrutiny is that when companies bring arbitration claims against consumers, “they win 93 percent of the time.”  While that number is consistent with the CFPB’s findings, it is taken completely out of context.  These claims were debt collection claims by companies in which the consumer either defaulted or had no defenses or very weak ones.  What the press release and fact sheet fail to state is that the result would not have been any different in court.  This precise point was made by the Maine Bureau of Consumer Protection in a 2009 report to the Maine Legislature on consumer arbitrations:

[I]t is important to keep in mind that although credit card banks and assignees prevail in most arbitrations, this fact alone does not necessarily indicate unfairness to consumers.  The fact is that the primary alternative to arbitration (a civil action in court) also most commonly results in judgment for the plaintiff.  Although certainly there are cases in which a consumer has a valid defense to the action, it is also correct to say that most credit card cases result from a valid debt and a subsequent inability of the consumer to pay that debt.

(Emphasis added).  Also, the success rate in debt collections claims by companies is irrelevant to the question of whether class actions are better for consumers than arbitration because such debt claims are completely individualized and not susceptible to class action treatment.   The fact that companies “win 93% of the time” does not support the conclusion that class actions should replace arbitration as the forum for resolving consumer disputes.

By the CFPB’s own calculations, 87% of the class actions studied provided no relief at all to the putative class members, while in the 13% of class actions that settled, the average payment to putative class members was a paltry $32.  The lawyers for the class, by contrast, made a whopping $424,495,451 in attorneys’ fees.  These are not numbers that support the additional 6,042 class actions that the CFPB estimates will be filed over the next five years if the arbitration rule is not repealed.  Nor are they numbers that justify the $2.6 billion to $5.2 billion that companies will have to spend defending them.

Even the CFPB did not find arbitration to be a system rigged against consumers.  If it had found arbitration to be unfair, it would not have allowed companies to continue to engage in individual arbitrations with consumers.   However, very few companies are expected to retain individual arbitration programs if the CFPB rule takes effect.  That is because companies subsidize almost all of the costs of individual arbitrations, and few of them will continue to pay those costs while also spending many billions of dollars defending against the 6,042 new class actions that will be filed against them as a result of the rule.

Senator Warren’s press release states that “consumers rarely pursue individual arbitration.”  But that is because most consumers resolve disputes through the use of companies’ informal dispute resolution procedures and also through on-line complaint portals provided by federal and state agencies including the CFPB itself.  Moreover, although the CFPB has a Consumer Education and Engagement division and virtually unlimited resources, it did not spend a single dollar trying to educate consumers about arbitration.

When all of the relevant numbers and facts are considered, there is only one conclusion — the CFPB arbitration rule must be repealed so that consumers can continue to enjoy the many benefits that arbitration affords them in resolving disputes with companies.  If the rule is repealed, Congress would still be able to issue a regulation supporting the use of arbitration as a vehicle for resolving consumer disputes, if it chose to do so.  For example, such a regulation could require companies using arbitration to provide enhanced disclosures to consumers.  It could also require the CFPB to devote some of its resources to educating consumers about arbitration so that they will be more knowledgeable and better equipped to use it.

The recent data breach disclosure by Equifax raised an outcry from consumer advocates trying to link the data breach to the Consumer Financial Protection Bureau’s (CFPB) final arbitration rule.  They are portraying this cybersecurity incident as a prime example of why class actions are needed to protect consumers, hoping to persuade the U.S. Senate not to repeal the rule under the Congressional Review Act.  The CFPB rule bars financial services companies from including class action waivers in consumer arbitration agreements beginning on March 19, 2018.

The Senate should disregard their arguments.  While the CFPB arbitration rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.  Therefore, the Equifax data breach has nothing to do with the CFPB arbitration rule.  In any event, the issue appears to be moot, since according to published reports Equifax has stated that it will not seek to apply its on-line arbitration clause and class action waiver to claims based on the data breach itself.

Consumer advocates have also criticized Equifax for purportedly requiring consumers who may have been affected by the data breach and who want to sign up for the company’s offer to provide free credit protection services to agree to arbitrate claims from those services (unless they exercise their right to opt out of the arbitration clause), but Equifax has made clear that its arbitration clause and class action waiver will not apply to this cybersecurity event.  But lost in the hubbub is the fact that claims of this nature would appear to be inherently individualized and not susceptible to class action treatment since the facts pertinent to each consumer’s account presumably will be unique.

Ultimately, this incident exemplifies why the Senate should vote to repeal the CFPB arbitration rule.  The CFPB, the Federal Trade Commission and state attorneys general (most notably Attorney General Schneiderman of New York) got involved almost immediately and will advocate on behalf of consumers more efficiently and effectively than class action lawsuits, without siphoning off a hefty attorneys’ fee if they prevail.

In July, the CFPB issued its Final Arbitration Rule on the use of arbitration provisions in consumer financial services products and services.  I will be participating in two upcoming programs related to the Rule.

PLI Webinar on CFPB Arbitration Rule

On September 13, 2017 at 2:00pm ET, Practicing Law Institute (PLI) will host a teleconference on the CFPB’s Arbitration Rule.

A link to register for the program is here.

ABA Program on The CFPB’s Final Arbitration Rule: Everything You Need to Know

In conjunction with the ABA Business Law Section Annual Meeting being held in Chicago on September 14-16, 2017, a panel discussion entitled: The CFPB’s Final Arbitration Rule: Everything You Need to Know will be held on September 14 from 2:30-3:30pm CT.

In an op-ed published in today’s New York Times, CFPB Director Richard Cordray argues against congressional repeal of the agency’s final arbitration rule by “correcting the record.”  He contends that the CFPB’s March 2015 study of consumer arbitration shows that consumers fare much better in class action litigation than in individual arbitration.   We have read that study many times and have drawn the opposite conclusion.

For example, the CFPB’s study contains the following statistics regarding class actions:

  • Only 12.3% of the 562 class actions studied produced any settlement benefits to the putative class members.   Since none of those class actions went to trial, that means about 87% of the putative class members received no benefits at all.
  • 60 % of the class actions either settled individually or were dropped by the named plaintiffs, leaving the putative class members to fend for themselves.
  • The benefits received by putative class members in the 12.3% of the class actions that settled were minuscule — an average of $32 — and for that paltry sum the settlement class members had to wait for two or more years.
  • In class settlements that required the putative class members to submit a claim form, the weighted average claims rate was only 4%, meaning that 96% of the potentially eligible putative class members failed to obtain any benefits because they did not submit claims.
  • Director Cordray argues that the lawyers for the class “collect a small portion compared with consumers.”  But the CFPB’s study determined that the plaintiffs’ lawyers received a staggering $424,495,451 in attorneys’ fees in the class actions studied.  Hardly a “small portion.”

Now, compare those numbers with the CFPB’s data regarding individual arbitration:

  • The average award to a prevailing consumer in arbitration was $5,389 —166 times what putative class members recover on average in class settlements.  And, they received that award within five months, instead of two or more years.  (Even Director Cordray acknowledged in his op-ed that “[i]t is true that the average payouts are higher in individual suits”).  While, as Director Cordray notes, fewer people go through arbitration, that is attributable in large part to the fact that the CFPB refused to spend any of its virtually unlimited resources educating consumers on the many benefits that arbitration has to offer them.
  • The consumer’s share of the arbitration costs were minimal, typically $200 at most compared to the $400 fee for filing a federal court complaint.   The companies pay the remaining costs (typically $3,000 or more), and many companies have agreed in their arbitration clauses to pay or advance the consumer’s share.
  • While none of the 562 class actions the CFPB studied went to trial, of 341 cases resolved by an arbitrator, in-person hearings were held in 34% of the cases, and an arbitrator issued an award on the merits in about one-third of the cases.

Director Cordray’s op-ed overstates the importance of class actions to consumers.  In submitting comments on the CFPB’s May 2016 proposed arbitration rule, the U.S. Chamber of Commerce analyzed 10 days’ worth of consumer complaints submitted to the CFPB through its complaint portal in 2016 to determine whether the complaints revealed individualized disputes or disputes that would be amenable to class treatment.  It concluded that “over 90 percent of the narratives that consumers submitted to the Database described disputes that were likely individualized.”  The CFPB’s final arbitration rule imposes draconian measures on the financial services industry to benefit (supposedly) only a small percentage of the disputes that consumers have.

The  op-ed  attempts to minimize the financial harm the rule will inflict on affected companies.  The CFPB estimates that the proposed rule will cause 53,000 providers who currently utilize arbitration agreements to incur between $2.62 billion and $5.23 billion over a five-year period to deal with 6,042 additional federal and state court class actions that will be filed due to the proposed rule’s elimination of class waivers.  Those numbers presumably will be repeated every five years.  He repeats his position that this will not pose a risk for the safety and soundness of banks because it is only about “$1 billion per year,” but we have shown in a previous blog that in fact there is a very real safety and soundness concern depending upon future circumstances.  In any event, the op-ed neglects to mention that most if not all of these increased costs will be passed through to consumers, who as taxpayers will also bear the additional costs to the court systems of administering thousands of additional class actions.

Director Cordray’s op-ed argues that class actions benefit consumers “by halting and deterring harmful behavior.”  It gives an example of a class action in which a class action recovered $1 billion.  But the CFPB itself is far more effective and efficient than class action litigation in addressing alleged consumer harm.  On the front page of its website, the CFPB announces that through July 20, 2017, it has ordered companies to pay more than $11.9 billion to more than 29 million consumers in enforcement actions.  That is an average payment of $410 to each consumer, about 13 times the $32 cash payment received by the average putative class member.  Moreover, none of that consumer relief went to pay private attorneys’ fees.

Finally, the op-ed accuses opponents of the rule as “falsely” claiming that the rule bans individual arbitration.  We certainly have not made that assertion.  But we have argued that many if not most companies, based on a cost-benefit analysis, will likely cease offering even individual arbitration programs if class-action waivers are prohibited.  That is because a cost-benefit analysis may not support a company’s subsidizing of individual arbitrations without the corresponding benefit of  reducing class action litigation costs incurred in defending mostly meritless class actions.  If companies abandon arbitration altogether, that effectively will eliminate even individual arbitration.

Section 1028 of the Dodd-Frank Act imposed three express limits on the CFPB’s rule-making authority.  Any arbitration rule must be (1) “in the public interest,” (2) “for the protection of consumers” and (3) “consistent” with the study.  The failure of the final arbitration rule to satisfy these statutory mandates, as shown by the CFPB’s own study, should compel the Senate to join the House in overturning the rule.

A report by the majority staff of the House Financial Services Committee concludes that there is a “valid and factual basis” for instituting contempt of Congress proceedings against Director Cordray.  The report states that it was issued in furtherance of “the Committee’s on-going investigation into the CFPB’s arbitration rulemaking.”

The report recites the history of what the majority staff calls “the CFPB’s longstanding failure to fully comply with the Committee’s on-going oversight regard pre-dispute arbitration. The report describes the Committee’s request for records relating to the CFPB’s arbitration rulemaking issued in April 2016, the CFPB’s failure to produce the requested records, the subpoena issued by the Committee to Director Cordray in April 2017 requiring production of the requested arbitration-related records as well as documents requested by the Committee on other topics, and Director Cordray’s default on the subpoena.

The report focuses on the two specifications in the subpoena related to the arbitration rulemaking.  One specification required production of “all documents relating to pre-dispute arbitration agreements between the CFPB and [specified consumer advocacy groups.]”  The other specification required production of “all communications from one CFPB employee to another CFPB employee relating to pre-dispute arbitration agreements.”  The majority staff provides a detailed explanation for their finding that Director Cordray has defaulted on the two specifications and that due to such default, there is “ample basis to proceed against [him] for contempt of Congress.”

Politico has reported that Jen Howard, a CFPB spokesperson, issued a written statement in which she indicated that the CFPB has “been working diligently to comply with the committee’s oversight on a number of fronts,” and “[o]n this particular matter, we have produced thousands of pages of documents thus far, and by next week we will have completely responded to one of the two specifications at issue.”

The Committee has not yet taken a contempt vote.  We hope the report may help persuade Republican Senators who are reportedly undecided on how they will vote on the resolution introduced in the Senate to disapprove the CFPB’s arbitration rule under the Congressional Review Act to vote in favor of the resolution.

A group of 19 state attorneys general and the District of Columbia attorney general have sent a letter to Senate Majority Leader Mitch McConnell and Senate Minority Leader Charles Schumer expressing the AGs’ “strong opposition” to S.J. Res. 47, the resolution introduced in the Senate to disapprove the CFPB’s final arbitration rule under the Congressional Review Act.

Last week, the House passed H. J. Res. 111 disapproving the arbitration rule under the CRA.  Under the CRA, to override the arbitration rule, both the House and Senate must pass a resolution of disapproval by a simple majority vote within 60 legislative days of the rule’s receipt by Congress.  A vote on the Senate resolution is not expected to occur until September.

In their letter, the AGs assert that they are “quite familiar with the many meritorious class actions filed every year across the country and have reviewed thousands of successful class settlements” because their offices review proposed federal court class action settlements pursuant to the federal Class Action Fairness Act.  They claim that these cases “supplement and expand our enforcement authority and prevent abuses that we do not always have the resources to address” and that “[s]uccessful cases also return millions of hard-earned dollars to low- and middle-income consumers who would otherwise have no remedy for overcharge, fraud and abuse.”

Despite the billions of dollars the arbitration rule will cost providers who currently use arbitration agreements to defend against additional class actions, the AGs urge lawmakers to consider the CFPB’s “careful and well-researched work in support of the rule, including its thoughtful analysis of the limited cost of the rule to businesses when compared to the benefits to consumers.” (emphasis added)

Unfortunately, the AGs’ position suffers from the same faulty assumption as the final arbitration rule itself – i.e., that class actions are “meritorious” even when they settle without a final adjudication of liability and the defendant denies liability.  As many courts have observed, many if not most class actions settle, not because they have merit, but because most companies cannot afford to lose them. See, e.g., Coopers & Lybrand v. Liveasay, 437 U.S. 463, 476 (1978) (“[c]ertification of a large class may so increase the defendant’s potential damages liability and litigation costs that he may find it economically prudent to settle and to abandon a meritorious defense”); Newton v. Merrill Lynch, Pierce, Fenner & Smith, 259 F.3d 154, 164 (3d Cir. 2001) (class certification “places inordinate or hydraulic pressure on defendants to settle”); In re Rhone-Poulenc Rorer, Inc., 51 F.3d 293, 299 (7th Cir. 1995) (class certification may require defendants to “stake their companies on the outcome of a single jury trial”).  See also Senate Report No. 14, The Class Action Fairness Act of 2005, 109th Congress, 1st Sess., 2005 WL 627977, at *14, 20-21 (Feb. 28, 2005) (“Because class actions are such a powerful tool, they can give a class attorney unbounded leverage, particularly in jurisdictions that are considered plaintiff-friendly.  Such leverage can essentially force corporate defendants to pay ransom to class attorneys by settling – rather than litigating – frivolous lawsuits.”).

The CFPB’s final rule will burden financial services providers with 6,042 additional class actions over the next five years, at a cost of between $2.6 billion and $5.3 billion, and there is no reason to believe that these additional class actions will be any more “meritorious” than the past ones. The CFPB acknowledges in the final rule that (a) none of the 562 class actions it studied was tried on the merits, (b) only 12.3% of the class actions had final settlements approved during the study period, (c) the average cash payment to settlement class members was $32 and (d) the attorneys for the plaintiffs were paid $424,495,451.  By contrast, awards to prevailing consumers in individual arbitrations averaged close to $5,400.

Nor does the AGs’ alleged lack of “resources” justify opening the class action floodgates. The CFPB itself has virtually unlimited resources, and the AGs collaborate with the CFPB and one another. This is what the Senate should keep in mind as it considers the joint resolution of disapproval.


A report prepared by the Democratic staff of the House Financial Services Committee takes aim at Republicans for “attempt[ing] to ensure that the country reverts back to a big bank-oriented regulatory environment and to ‘functionally terminate’ the [CFPB].”

After recounting the 2008 financial crisis that led to the CFPB’s creation and lauding various regulatory, supervisory, and enforcement actions taken by “the highly successful Consumer Bureau,” the report describes Republican efforts to “undermine” the CFPB, including through the Financial CHOICE Act (which the report refers to as the “Wrong Choice Act”) and appropriations bills.

The report uses the CFPB’s issuance of the final arbitration rule and “the significant pushback received from Republicans in Congress and Acting OCC Comptroller Keith A. Noreika” as a “case study” that illustrates “the importance of having an independent Federal agency, dedicated to ensuring that consumer financial markets are fair, transparent, and competitive.”  The report describes Republican plans to use the Congressional Review Act to override the rule (which are moving forward with the House’s passage yesterday of H.J. Res. 111) and the letters exchanged between CFPB Director Cordray and Acting Comptroller Noreika about OCC concerns regarding the rule’s impact on the safety and soundness of the U.S. banking system.

The report labels those concerns “disingenuous” and characterizes the Acting Comptroller’s July 10 letter to Director Cordray as “a misguided ‘Hail Mary” tactic to [attempt to use the Financial Stability Oversight Council] to overturn the final rule.”  The report (perhaps signaling what will be a Democratic “talking point” to build public support for the rule) also claims that because Acting Comptroller Noreika defended the use of arbitration agreements when he was in private practice, his “persistence…in attempting to block the Consumer Bureau is not shocking.”  According to the report, he “is now trying to nationalize his prior tactics and prevent all consumers from having their day in court.”

The report urges Congress to “support and encourage the swift implementation” of the CFPB’s arbitration rule and “strive to ensure that, a decade from now, consumers will still have an equally strong and successful watchdog in the Consumer Bureau to stop abusive and predatory practices as they do today.”