Business groups heap scorn on proposed arbitration ban

Business groups are harshly criticizing new rules from the Consumer Financial Protection Bureau that would make it easier for consumers to sue financial companies.

The consumer watchdog unveiled proposed rules Thursday that would bar banks and credit card companies from barring consumers from building class-action lawsuits against them. So-called forced arbitration clauses found across a range of financial contracts require consumers to agree to settle any disputes through private arbitration rather than going to court. A CFPB study found that consumers reaped significantly smaller rewards through arbitration.

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The move to prohibit the practice earned plaudits from Democrats and consumer advocates, who argued the move will ensure consumers can have their day in court.

But business groups were quick to pounce on the proposal, indicating the regulator could have a fight on its hands to get the rule through.

“This morning, the Bureau released a proposed regulation to enrich class action trial lawyers at the expense of the consumers the Bureau is charged with protecting,” said Travis Norton, an official with the U.S. Chamber of Commerce, at a New Mexico field hearing on the rule.

Congressional Republicans also jumped to criticize the rule. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) called it a “big, wet kiss to trial attorneys.”

Sen. Sherrod BrownSherrod Campbell BrownSenate Dems press for info on any deals from Trump-Putin meeting Dems call for hearings on Trump’s CFPB nominee to be put on hold Senate Dems build huge cash edge in battlegrounds MORE (D-Ohio), the top Democrat on the Senate Banking Committee, offered the counterbalance.

“The CFPB’s proposal to ban this unjust and unfair practice is a major victory for consumers,” he said in a statement. “I will push the CFPB to finalize the rule as soon as possible, and will fight against efforts to weaken it.”

The proposed rule would prevent companies from effectively blocking class-action lawsuits by requiring arbitration, although individual disputes could still be settled with a mediator.

An earlier CFPB study found that such clauses were found in nearly every prepaid card contract, as well as roughly half of all credit card contracts, and nearly half of all bank accounts were subject to it. The overwhelming majority of payday and student loans also impose this requirement on borrowers.

But the business and banking community heaped scorn on that study as well, arguing it was oversimplistic and relied on outdated data.

“It is unfortunate this pre-baked proposal is political rather than substantive,” said Richard Hunt, president and CEO of the Consumer Bankers Association.