The U.S. Treasury Department on Monday released a review of the Consumer Financial Protection Bureau’s (CFPB) arbitration rule, finding that the agency’s regulation failed to meet its own stated requirements.
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“… the Bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest—its two statutory mandates,” the report said.
The arbitration rule bans companies from preventing consumers from filing or participating in class action lawsuits and takes effect in 2019. The rule therefore makes it easier for consumers to bring class-action lawsuits against credit card companies, banks and other financial institutions.
The Treasury said that the rule will “impose extraordinary costs,” generating an additional 3,000 class-action lawsuits over the next 5 years. Affected businesses will spend an estimated $500 million in extra legal fees, $330 million in payments to plaintiffs’ lawyers, and $1.7 billion in additional money for settlements, the Treasury reports. Meanwhile, in 87% of class-action cases, either no plaintiffs, or only those named on the case receive any sort of payout, according to CFPB data.
Additionally, the Treasury Department said the CFPB failed to take into account how many frivolous lawsuits are filed.
The Trump administration and Republicans have taken issue with the rule, which was issued by the CFPB in July, and lawmakers are preparing to vote on overturning it. The CFPB is still run by Richard Cordray, who was appointed by former President Barack Obama.