Understanding the Debate Around CFPB’s Proposed Arbitration Regulations

The Consumer Financial Protection Bureau (CFPB) has recently come under scrutiny for its proposed regulations regarding the use of pre-dispute arbitration provisions in consumer financial service contracts. A letter from Rep. Andy Barr and Sen. Thom Tillis, addressed to CFPB Director Rohit Chopra, outlines several reasons why these proposed regulations are considered problematic and potentially harmful to consumers.

The letter argues that the CFPB's actions subvert past Congressional action and intent, specifically referencing the Congressional Review Act (CRA). The CRA was used to reject a previous anti-arbitration rule from the CFPB, establishing that a rule cannot be issued in "substantially the same form" unless authorized by a new law. The letter asserts that the proposed regulations mirror the previously disapproved rule, which would not only violate the CRA but also disrespect the separation of powers principle.

Furthermore, the letter contends that the proposed rule exceeds the CFPB's authority as outlined in the Dodd-Frank Act. Section 1028 of the Act requires the CFPB to conduct a study and demonstrate that any proposed regulation is "consistent with the study" and "in the public interest and for the protection of consumers." The letter criticizes the CFPB's reliance on outdated data from a 2015 study, suggesting that the Bureau is not adhering to the requirement to base regulations on current facts and data.

The letter also challenges the notion that arbitration is harmful to consumers. It cites empirical evidence indicating that consumers who assert claims in arbitration fare as well as or better than those who assert claims in court. The letter references ILR research, which found that arbitration can be "fairer, faster, and better" for consumers, providing a more efficient and effective means of resolving disputes compared to traditional litigation.

Arbitration is often seen as beneficial for several reasons. It typically offers a quicker resolution to disputes, reducing the time and resources that would otherwise be spent in court. Arbitration can also be less formal and more flexible, allowing for procedures tailored to the parties' specific needs.

As ILR's research shows, arbitration can indeed be more beneficial for consumers, providing a compelling alternative to litigation. It is crucial that any regulatory activity by the CFPB impacting the availability of arbitration consider the full scope of implications for consumer protection and access to justice as well as the limits placed on the agency by law.