Trump Kills Cordray's Arbitration Rule; Would He Do the Same for Debt Collectors?

In spite of Consumer Financial Protection Bureau (CFPB) Director Richard Cordray's best efforts, President Trump has officially killed his newly minted Arbitration Rule. 

On July 11, 2017 insideARM reported that the CFPB had issued a final rule banning mandatory arbitration clauses in financial services agreements. The Bureau's announcement at the time said, 

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong. These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together." 

Since that date in July, many have been working to ensure the rule would never take effect. These efforts culminated last week with a tiebreaking 50-51 Senate vote (Vice President Mike Pence broke the tie) to nullify the rule.

As a final hail mary, Cordray sent this letter to Trump on Monday, imploring him to veto the bill on his desk. On Tuesday, Competitive Enterprise Institute senior fellow John Berlau wrote his own letter to President Trump, urging him to sign the resolution. He also upped the ante, urging him to fire Cordray immediately.

An excerpt from the Berlau letter reads,

"Without a trace of irony, Mr. Cordray writes that without the rule, American families will be “left helpless to fight back.” You know this is not the case, as your White House statement points out correctly that the regulation “would neither protect consumers nor serve the public interest,” and that “by repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions.” Indeed, despite fake news stories proclaiming Wall Street the only winner from defeat of this regulation, representatives of community banks and credit unions, such as the Independent Community Bankers of America and the Credit Union National Association, opposed the rule vigorously and urged Congress to kill it."

insideARM Perspective

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Much has been written about both the merits and evils of arbitration vs. class action lawsuits. Yes, class actions are a way for consumers to fight the big guy. But they provide meaningful compensation primarily to the trial lawyers. Most class action members (consumers) typically see almost no money. Do they change behavior of companies? Maybe. I don't think the answer is as clear cut as each side would paint it.

At the end of the day, a lot of money and time was spent by the CFPB to create work -- and then Congress -- that has now been thrown away. Whichever side you are on, as a taxpayer, this is disappointing. 

A line in Cordray's letter to Trump reminds us of an on-going subplot: "You and I have never met or spoken...". Trump is Cordray's boss, yet they have never met - or even spoken. Given the environment, this is not surprising, but it is a bit ridiculous. 

Meanwhile, it seems this was a rare issue that basically 100% of Republicans in Congress could get behind. The CFPB is expected soon to release a final rule about debt collection. In this case, industry participants are hoping for some much needed clarity. But if there is wide discontent with the rule, I wonder whether Congress would rally around debt collectors (most of whom are small businesses) the way they rallied around the banks and other large institutions.