The Consumer Financial Protection Bureau may be down, but its director is trying very hard to show it’s not out.
The embattled bureau last week issued one of its most controversial rules yet; one aimed at the credit card and bank industries over a practice that has become as normal as fees.
It is the arbitration clause, which companies include in their contracts, so that if a consumer disputes a fee, or other matter, they must go through mediation with the institution before they sue the company.
Last week, CFPB Director Richard Cordray proclaimed that the agency had finalized a rule that forbids that clause to be included.
Furthermore, wronged customers can team up and file class-action lawsuits.
“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,” Cordray said.
The financial industry immediately responded, saying this was another example of the power many have complained the bureau abuses. Already, the CFPB is on the chopping block through legislation aimed at severely clipping its wings. That is the CHOICE Act, which was passed by the House of Representatives earlier this summer. It repeals most of the Dodd Frank Act, which was created the bureau.
In a statement released about the controversial rule, Cordray seemed to go out of his way to justify it by on the basis of everyone should be able to sue, especially these banks. He did acknowledge that the rule does not bar arbitration clauses outright, but:
“By restoring the ability of consumers to file or join group lawsuits, the rule gives companies more incentive to comply with the law. And the deterrent effect of such cases can more broadly influence the business practices of other companies as well.”
He also said that rule prohibits banks and other consumer financial companies from including mandatory arbitration clauses that block class-action lawsuits in any new contracts after the compliance date.
No institution was named as one that blocks class-action lawsuits.
As it stands now, most financial institutions include arbitration clauses in their contracts with customers. It’s nearly expected to avoid lengthy, costly lawsuits.
Sealing his own faith
One of the reasons the CFPB has come under fire is because of Cordray. He has been called the ring leader of the agency that acts as the jury and judge. In fact, the CFPB is being sued, partly because its structure, including his position, are thought to be unconstitutional.
With this latest rule, anger about him and the bureau is rising again, as it has already caused outcries. It’s also called those in the financial industry to point to another reason that the group’s power is too much, or it is being abused.
Some of those who’ve weighed in include the Chamber of Commerce:
“The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue. CFPB’s actions exemplify its complete disregard for the will of Congress, the administration, the American people, and even the courts.”
Lawmakers wasted no time speaking of their support, too. This includes Sen. Elizabeth Warren, who crafted many of the terms for the CFPB to act.
“This CFPB rule will allow working families to hold big banks accountable when they’re cheated and help discourage the kinds of surprise fees that consumers hate,” she said.
She went on to predict that the Republicans will not like the bill because they wanted to help their wealthy donors.
The rule is set to take effect in 60 days and will apply to contracts that begin 180 days afterward. Existing contracts will not be affected.
However, given the very shaky ground the CFPB is on with lawmakers, the odds of this happening are also up in the air.
Cordray himself even seems to be aware of the pessimism around his agency and now this rule.
“I am, of course, aware of those parties who have indicated they will seek to have the Congress nullify this new rule. That is a process that I expect will be considered and determined on the merits.”