January 2017 - The World's Local Bank

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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T GOVERNMENT THE LATEST Is the Future of CFPB's Arbitration Proposal in Doubt? The proposal is unlikely to receive support from a Republican administration and Republican-dominated Congress. P resident-elect Donald Trump vowed to roll back various regula- tions for the financial services and housing industries. While the reforms he has talked about—such as overhauling the Dodd-Frank Act or reforming the CFPB—would likely take more time, there are some areas within the CFPB's proposed rules where the impact could be felt more im - mediately. One such area is the CFPB's proposed rule to limit the use of pre-dispute arbitration clauses in business contracts, which caused a major controversy within the financial services industry when it was first announced in October 2015 and then officially introduced in May 2016. The proposed rule to limit arbitration clauses is one rule that might not pass under a Trump Administration. The rule would essentially open the door for consumers to file class-action lawsuits against financial services providers. Supporters of the rule say it is necessary in order to give consumers "their day in court," while detractors of the rule claim it creates a windfall for trial law - yers, that only a small percentage of class-action suits ever make it to court, and that the average pay- out per consumer in a class-action suit is only $32. Like with most issues sur- rounding the CFPB and Dodd- Frank, the issue of whether or not to limit arbitration clauses is large- ly split right down the middle with Democrats in favor of the rule and Republicans against it— which makes it unlikely now that it will pass under a Republican administration with Republicans holding the majorities in both the House and the Senate. Several groups have spo - ken out against the proposed rule. In August, the American Bankers Association, the Consumer Bankers Association, and the Financial Services Roundtable created a 42-page rebuttal for the proposal, stat - ing, "The proposed rule does not benefit society or consumers . . . Both lose because, as taxpayers, consumers will have to pay for additional resources needed by courts to accommodate the per - manent influx of 6,042 additional class actions every five years. They lose because the cost of defending and settling cases—estimated to be between $2.62 billion and $5.23 billion every five years (100 ad - ditional lawsuits each month)—will be passed along to consumers in whole or in part in the form of higher prices or reduced services." Credit unions are another group that has petitioned for regulatory relief from the CFPB since the bureau's inception. On November 11, Jim Nussle, CEO of the Credit Union National Association, wrote a letter "to urge the Consumer Financial Protection Bureau (CFPB) to impose an immediate moratorium on all of its pending and future rulemakings, other than those providing corrective regulatory relief. The Credit Union National Association (CUNA) represents America's credit unions and their more than 100 million members." In May, the House Subcommittee on Financial Institutions and Consumer Credit determined in a hear - ing that the CFPB's proposed rule, if it passes, will result in higher costs to consumers and less access to financial products. The rule has gained some sup - port—in August, attorneys general in 15 states and Washington, D.C., wrote a letter urging the CFPB to adopt its proposal to limit the use of arbitration clauses in business contracts. "Consumers must have reason - able access to courts when they have been wronged by their bank," D.C. Attorney General Karl Racine said. "The ever-increasing use of binding-arbitration agree - ments has severely reduced the ability of consumers to protect themselves by going to court. We are urging the CFPB to adopt these rules to provide much-needed over - sight and help retain consumers' access to the justice system."

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