Credit unions should be exempt from CFPB regulations governing arbitration agreements because of the unique relationship they have with their members, credit union trade groups told the agency Aug. 21.
In May, the CFPB released proposed rules governing mandatory arbitration clauses found in many contracts. The agency said such clauses in contracts prevent consumers – including credit union members – from joining together in a suit to accuse financial institutions of wrongdoing.
The proposal does not prohibit arbitration clauses, but it specifies the language that may be used in clauses and emphasizes the fact that consumers can join a class-action suit.
"Rules that might seem appropriate for the largest financial institutions, who have very different relationships with their customers, are not appropriate for different and much smaller neighborhood financial service providers such as credit unions," Leah Dempsey, CUNA's senior director of advocacy and counsel, told the CFPB.
She added, "Overall, the most substantial concern credit unions have with this proposal is that it encourages members, against their best interest, to engage in litigation against the institution of which they are a member-owner."
NAFCU took a similar position in its comments.
"Credit unions should be excluded from the final arbitration rule because they are not responsible for even a small fraction of the deceit and destructive behavior in the financial industry that the CFPB cites as motivation for this rule," Ann Kossachev, the organization's regulatory affairs counsel, wrote to the CFPB. "NAFCU continues to believe that voluntary arbitration agreements provide a useful means of dispute resolution for many credit unions and their members."
The CFPB already has rejected the idea that credit unions should be exempt from the agency's regulations.
The comments on the proposed rules were due Monday, Aug. 22.
The two credit union groups said the CFPB relied on an inadequate agency study as the justification for the proposal. NAFCU said the study relied on too few credit unions and did not gauge the impact it would have on small financial institutions.
In her statement, Kossachev wrote the agency ignored its own Small Business Regulatory Fairness Act Panel, which found the rule would increase costs to consumers, reduce incentives for innovation, provide windfalls to named plaintiffs and class members and have a negative impact on informal dispute resolution mechanisms.
Dempsey said credit unions are hiring more compliance officers than loan officers and are being forced to devote additional resources to compliance. She pointed out 329 members of the House and 70 senators have urged the CFPB to exempt credit unions from burdensome regulations.
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