CFPB Arbitration Rule Overturned

By a 51-50 vote, with Vice President Pence breaking the tie, the Senate has voted to overturn the Consumer Financial Protection Bureau's rule forbidding the use of contract terms (in covered consumer loan products) barring consumers to bring or participate in class actions. The affirmative vote was supported by the usual narratives: Class actions make credit more expensive, arbitration is a better and more efficient means for resolving consumer disputes, class action lawyers are greedy parasites, etc. The truth of these narratives is irrelevant, it seems. For instance, though it is possible arbitration might be used to efficiently and effectively vindicate consumer rights, there isn't much evidence that it does so in practice, and there is evidence to the contrary. As a mechanism for collecting consumer debts, the history of arbitration is uglier still. And even if the availability of class actions increases the cost of credit--emphasis on if--it's not obvious this would be bad. If class actions deter lender misconduct--not that there's any history of bank misconduct!--, and if this increases some lenders' costs and ultimately the cost of their financial products, then... I don't know. Who cares, I guess? Why should consumers victimized by fraudulent lender conduct subsidize cheaper credit for others? The contrary narrative--that class actions are just so darn expensive to defend that banks settle even the bogus ones for large sums of money--is so implausible that it should not be taken seriously without credible supporting evidence.  

Comments

[DeadlyClear]

Homeowners, in many cases, obtained more from modification arbitration forced by the courts on an individual basis than they did from class action lawsuits where the attorneys made the big bucks. HOWEVER, there are instances where collectively, representation of a large group of Plaintiffs makes a greater impact on juries and judges. The National Mortgage Settlement was a collective effort, albeit not very well monitored, and rendered a settlement designed to protect homeowners. Had it have been enforced and followed by the Defendants, there would be fewer foreclosures filled steeped in fraud today.