Credit union trade groups urged senators Monday to support efforts to nullify a CFPB rule restricting the use of mandatory arbitration, even as a key Democrat said the recent Equifax data breach and Wells Fargo debacle demonstrate the need for the rule.
"For many community financial institutions, arbitration is a practical alternative to costly and interminable class action litigation," leaders of CUNA, NAFCU and the Independent Community Bankers of America said, in a joint letter to Senate leaders. "Class action suits serve the interests of trial lawyers at the expense of consumers who receive paltry settlements and community financial institutions who face exorbitant legal fees".
However, Senate Banking Committee ranking Democrat Sherrod Brown of Ohio said the rule is needed to help protect consumers.
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"Too many financial companies, including Wells Fargo, continue to use forced arbitration to block customers from seeking justice once they've been cheated or harmed," Brown said.
The CFPB rule prohibits financial institutions from using arbitration agreements to keep consumers from being part of a class action suit. Immediately after its release, congressional Republicans announced their intentions to try to nullify the rule.
Using the Congressional Review Act, House Republicans passed a resolution to nullify the rule. The resolution is pending in the Senate, where, if it is brought to the floor, it cannot be filibustered.
Senate Republican leaders have not brought it to the floor amid concerns that they don't have the votes to pass it.
In their letter, the community bankers and credit union officials said the rule, if allowed to remain in effect, could pose dire consequences for their financial institutions.
"For community financial institutions, loss of arbitration as a viable option would fuel continued industry consolidation, larger institutions, fewer communities without a dedicated institution and, ultimately, reduced consumer choice," they wrote.
But Brown said that after news of the Equifax data breach broke last week, the company included arbitration agreements in the terms of use agreements customers must sign to get free credit monitoring and identity theft services it is offering.
Brown said that the company dropped the arbitration clause after he asked the company to do so, but added that arbitration agreements remain part of their other products.
"The fact that it took a public shaming to force Equifax to drop forced arbitration from TrustedID, is further proof why the Consumer Financial Protection Bureau's rule is needed," he said.
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