As if further evidence were needed, last week, the Consumer Financial Protection Bureau (CFPB) demonstrated why it needs to be eliminated. It announced a new rule that, if not overturned, will upend an effective way of addressing consumer claims against financial institutions, potentially flood the courts with cases, and increase costs to customers. While getting rid of the CFPB may be a long-term project, Congress has a way to swiftly undo this new rule through the Congressional Review Act (CRA). It should do so before the rule comes into effect.
The apparatchiks at the bureau issued a rule that will end the use of mandatory arbitration clauses by companies. This leftist populism will poorly serve companies and consumers alike. As the Mercatus Center explained, if a potential customer does not want to make transactions that are governed by a mandatory arbitration clause, he is free to do business with another company. Absent arbitration, there will likely be more “meritless class actions” brought against companies. Those costs will necessarily be passed along to the consumer, since companies cannot reasonably be expected to absorb them. Once again, the left is substituting its judgment for that of the people and the markets, with the predictable results of more litigation and higher costs.
Prior to announcing this rule, the CFPB conducted a study to review mandatory arbitration clauses. The Competitive Enterprise Institute (CEI) found that “the CFPB study is flawed owing to the incomparability of the data it attempts to compare. Attorneys routinely challenge arbitration provisions to protect their own special interests. As a result, consumers often have been thwarted in their efforts to exercise their right to submit to arbitration.” As CEI reported, “the CFPB’s own data showed that arbitration resulted in more money, quicker, for the consumer than class action.” A defective study and a willingness to put trial lawyers ahead of an efficient process that serves the public are the foundation of the bureau’s new rule.
That foundation is rotten. It exposes the realities of the CFPB as an out-of-touch entity pursuing a far-left ideology with minimal supervision. As Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, stated, the CFPB “is unaccountable to the president, unaccountable to Congress, unaccountable to the courts, unaccountable to the American people.” Its operators can issue rules that negatively impact millions of Americans and many businesses while evading the traditional checks and balances put in place by the Founding Fathers.
Rep. Hensarling did yeoman’s work to curb the authority of the CFPB through authoring H.R. 10, the Financial CHOICE Act. This legislation would significantly reform the CFPB by bringing it under the executive branch, ending its status an independent agency, setting up an inspector general confirmed by the Senate, putting the CFPB under direct congressional oversight, and making its funding part of the normal congressional appropriations process. The Financial CHOICE Act passed the House on June 8 by a vote of 233-186.
This legislation is pending in the Senate. It will prove difficult to pass in the world’s greatest deliberative body, given the legislative logjam in the chamber.
In the meantime, immediate action needs to be taken to dismantle the CFPB’s arbitration rule. Congress has a tool at its disposal, the CRA. Passed by a Republican Congress and signed into law by President Bill Clinton in 1996, this bipartisan law “creates a streamlined procedure by which Congress can disapprove and thereby nullify regulations promulgated by various federal government agencies.” This year, Congress has successfully used its oversight authority via the CRA to undo more than a dozen regulations from the Obama administration.
Sen. Tom Cotton (R-Ark.) is working on jettisoning the arbitration rule by utilizing the CRA. “The last thing Americans need is more anti-business regulation that will prompt frivolous lawsuits while hurting consumers,” according to a statement from the senator announcing his plan. In the House, Rep. Hensarling “said he would support use of the Congressional Review Act (CRA) to dismantle the rule.”
Passing a CRA resolution requires just a majority vote in both the House and the Senate to get to the president’s desk for his signature. As soon as the ink is dry on such a resolution, it should be taken up by Congress. It is vital that the arbitration rule is undone as soon as possible. It has the potential to create an atmosphere hostile to capitalism and friendly to the litigious-minded, as well as to further the goals of the community organizers at the CFPB. Congress needs to move expeditiously to void the arbitration rule and checkmate an agency that Sen. Cotton rightly described as having gone “rogue again.”
Unless and until the CFPB is shut down by Congress, it will continue to issue rules that run counter to common sense and the common good. Indeed, the arbitration rule promulgated by the unelected and under accountable bureaucrats at the CFPB may lead to its demise. In the meantime, Congress should use the CRA to vitiate the bureau’s virulent arbitration rule. Doing so will demonstrate that Congress is serious about putting consumers before bureaucrats and the Constitution before the schemes of the misguided left.