The Consumer Financial Protection Bureau (CFPB) has finalized a harmful new rule that will ban consumers and financial companies from agreeing to use arbitration, rather than class action lawsuits, to resolve disputes.
Arbitration is the private resolution of a dispute by an independent third party known as an arbitrator. Class action lawsuits, on the other hand, are court proceedings where a group of people with similar claims sue a defendant as a group.
The CFPB finalized this rule even though their own study shows that consumers recover, on average, $5,389 when using arbitration versus $32.35 when using class action suits. Using different values in the CFPB study, the average award could be as low as about $5.
As Chairman Jeb Hensarling (R-Texas) points out, the CFPB study also shows that trial attorneys win big in these class actions.
Thankfully, Congress and the Trump administration recognize that this harmful rule is little more than a gift to trial lawyers. The House has passed a Congressional Review Act (CRA) resolution to nullify the rule, and the administration has announced it supports the effort. It’s likely that the Senate could vote on its own CRA resolution, and send the bill to the White House, before August recess.