ACA International Denounces CFPB’s Proposed Rule to Limit Arbitration as Evidence of Unbalanced Regulation

The CFPB wants to prohibit businesses from using class action waivers in arbitration agreements to protect against actual and threatened predatory litigation.

The Consumer Financial Protection Bureau has released a proposed rule on pre-dispute arbitration agreements that would ban class action waivers in contracts for many consumer financial products and services, including debt collectors. Now, ACA International is joining a chorus of industry groups, academics, and policymakers and decrying the proposal as another example of unchecked regulation.

Although the proposed rule does not ban arbitration agreements outright, if finalized, many companies will likely abandon arbitration altogether, taking this important option away from consumers, opening businesses up to opportunistic class action litigation, and significantlycontributing to an already over-burdened court system. 

The release of the proposed rule is the CFPB’s latest move aimed to expand their regulatory reach despite lacking evidence to support its policy position.  Unlike class action lawsuits, which can be lengthy, complex, and ultimately provide very little actual relief to consumers, arbitration has proven to be a cost-effective, efficient and consumer-friendly mechanism to resolve disputes. In fact, the vast majority of consumer disputes are resolved informally, before even getting to arbitration or litigation.

“In the credit and collection industry, an overwhelming majority of consumer disputes are resolved amicably and informally before either party needs to consider arbitration or costly litigation,” said ACA International CEO Patrick J. Morris. “This is another case of the CFPB creating a solution for a non-existent problem under the guise of consumer protection. The CFPB is again acting in a manner that harms businesses without any meaningful, corresponding benefit to society. Effectively eliminating arbitration agreements doesn’t help consumers, companies, or our nation’s courts. The only group benefitting will be the trial attorneys.”

In July 2012, ACA filed comments in response to the CFPB’s request for information on the scope, methods and data sources for conducting its study of pre-dispute arbitration agreements. In its comments, ACA emphasized that the CFPB must recognize the benefits to consumers of arbitration as compared to formal debt collection litigation.  ACA also urged the CFPB to study the impact of revoking the use of arbitration as an alternative to formal litigation to resolve debt collection issues, including whether consumers will suffer higher prices for goods and services if arbitration is no longer a viable alternative to litigation.

Comments on the CFPB’s proposed rule will be due 90 days after publication in the Federal Register.