The Trump administration is taking aim Monday at a new rule issued by the Consumer Financial Protection Bureau that would expand class-action lawsuits against banks, saying it will impose legal defense costs of more than $500 million per year on employers and provide little or no relief for consumers.
A Treasury Department analysis of the CFPB’s so-called “arbitration rule” said the regulation will not increase compliance with federal consumer financial laws, and that the agency failed to consider less “onerous” alternatives to the rule.
Last summer, CFPB raised alarm on Wall Street by issuing the rule that allows more people to file or join a lawsuit against banks. The rule weakens a company’s ability to make arbitration mandatory when customers settle disputes over terms of credit cards or bank accounts.
Richard Cordray, head of the Consumer Financial Protection Bureau, said mandatory arbitration clauses “eliminate a powerful means to get justice when a little harm happens to a lot of people.”
In its analysis, Treasury said CFPB expects the rule to generate more than 3,000 additional class action lawsuits over the next five years.
“Meanwhile, affected businesses will spend more than $500 million in additional legal defense fees, $330 million in payments to plaintiffs’ lawyers, and $1.7 billion in additional settlements,” Treasury said.
The report said consumers will end up paying the tab.
“Affected businesses are unlikely to simply absorb these new financial burdens,” Treasury said. “The Office of the Comptroller of the Currency recently reported that the bureau’s own data show that the rule’s costs will very likely be passed through to consumers in the form of higher borrowing costs for credit card users, among other burdens.”
The report also said that the “vast majority of consumer class actions deliver zero relief” to the members of the class.
“According to the bureau’s own data, only 13 percent of consumer class action lawsuits filed result in class-wide recovery — meaning that in 87 percent of cases, either no plaintiffs or only named plaintiffs receive relief of any kind,” Treasury said.
Prominent conservatives on Monday called on Mr. Trump Monday to freeze the CFPB’s actions and to fire Mr. Cordray, a move that activists on the right have sought since the president’s inauguration.
“As the Trump administration successfully continues to roll back harmful, Obama-era policies, the next place they should look to continue this effort is to immediately freeze all CFPB rules and replace Cordray with an individual who not only understands the unique needs of consumers and small businesses, but will put the interests of the American people above their own,” said Ken Blackwell, former domestic policy adviser to the Trump presidential transition and former Ohio state treasurer.
Conservative Steve Forbes said the CFPB “has been the source and driver of the most aggressive, unchecked assault on American commerce in modern times.”
“Since its inception, the CFPB has issued a mountain of rules that have done nothing but restricted consumers’ access to credit and other basic financial services, while imposing billions of dollars in unnecessary costs and creating millions of hours of compliance paperwork for small businesses,” Mr. Forbes said.
Liberals said the Treasury report was another example of Mr. Trump seeking to help his friends on Wall Street.
“Nothing undermines ‘draining the swamp’ more than Donald Trump’s Treasury Department — run by a former Goldman Sachs executive — joining forces with Wall Street’s top lobbyists to fight the Consumer Financial Protection Bureau’s new effort to protect Americans from corrupt practices,” said Andrew Bates, spokesman for the liberal Super PAC American Bridge. “Just ask the 3.5 million Americans defrauded by Wells Fargo. Like Trump’s tax plan, this is about rigging the U.S. economy in favor of powerful interest groups and the wealthy against the American middle class. Trump is selling-out the hardworking people he promised to champion.”