Trial lawyers have effectively taken over the U.S. government, a top Republican alleged Thursday after the Obama administration announced a new rule ensuring that consumers of financial products will retain their ability to take part in class-action lawsuits against financial service companies.
The Consumer Financial Protection Bureau’s new proposed rule limiting forced arbitration clauses in contracts “essentially hands over the keys of the CFPB’s luxury office building to the wealthy, powerful, and politically well-connected trial lawyer lobby,” said Jeb Hensarling, chairman of the House Financial Services Committee.
The rule would regulate forced arbitration clauses and outright ban language in contracts that prevents consumers from filing class-action suits against financial firms.
The long-awaited rule, made public at midnight, predictably divided consumer groups, which praised it, and the financial services industry, which said that it would raise prices for consumers and harm business.
“We applaud the bureau for protecting individuals’ rights to band together in class-action lawsuits to right the financial wrongs that deserve to be banished from the marketplace,” said Linda Sherry, an advocate with the group Consumer Action. “Class-action lawsuits deter other companies from contaminating the market with unfair and illegal schemes.”
Many Democrats and outside groups had hoped that the agency, created in 2010 by President Obama’s financial reform law, would go further and ban forced arbitration clauses in financial contracts. Nevertheless, they welcomed the rule as an example of the ability of the bureau to implement significant new regulations.
For Republicans, however, the new rule is another instance of the bureau’s lack of accountability to Congress. Hensarling called the agency a “de facto dictator,” and called for reforms. Republicans have backed the ideas of replacing the bureau’s sole director with a commission, and moving its funding from the Federal Reserve to annual congressional appropriations.
Rob Nichols, CEO of the American Bankers Association, said that arbitration clauses help banks resolve disputes quickly and fairly, keeping costs down for all customers. “We hope the CFPB will use the public comment period to rethink its approach to regulating arbitration in a way that puts consumers — not class-action lawyers — first,” he said.
