Federal regulators traded words Tuesday over a new rule favoring class-action lawsuits for financial products, in a simmering battle pitting an Obama holdover against a Trump appointee.
Richard Cordray, the Obama-appointed director of the Consumer Financial Protection Bureau that last week finalized the rule limiting mandatory arbitration, defended the rule Tuesday from second-guessing by the Office of the Comptroller of the Currency.
In response to acting comptroller Keith Noreika’s call to halt the rule to allow him to examine whether it could hurt banks, Cordray said in a letter sent Tuesday that there isn’t “any plausible basis” for Noreika’s concerns.
The impact of the rule would be less than $1 billion annually, Cordray said. “So on what conceivable basis can there be any legitimate argument that this rule poses a safety and soundness issue?” he asked.
Calling Noreika’s claim “plainly frivolous,” Cordray added that he questioned the appropriateness of the review.
In an outside scenario, the review could result in the rule being stopped by the Financial Stability Oversight Council, the super-group of federal regulators now headed by Treasury Secretary Steven Mnuchin.
Noreika responded Tuesday that he appreciated Cordray sharing the data underlying the analysis of the rule’s impact on banks and said that he and his staff would conduct their own review of the bureau’s analysis of how the rule could affect banks.
The main effect of the rule would be to prevent banks and other financial firms from issuing contracts that steer customers away from class-action lawsuits. Congressional Republicans are likely to mount a legislative effort to reverse the regulation.
In a letter to Noreika sent Tuesday afternoon, Sen. Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, accused him of trying to “manufacture an argument” against the measure.
“The argument that consumer protections will jeopardize the soundness of banks is as specious today as it has been in the past,” wrote Brown. “It is disappointing that the leadership of an agency that before the crisis was both lax in its consumer protection responsibilities and actively prevented states from exercising theirs has learned nothing from that crisis.”
