A hallmark of the Obama administration has been blasted by the Treasury Department—for issuing regulations that guarantee Americans’ right to sue misbehaving Wall Street firms.
Treasury on Monday released a report criticizing the Consumer Financial Protection Bureau for its forced arbitration rule.
The paper accused the CFPB of cherry-picking research during its rule-making process, and of effectively seeking to line the pockets of class action lawyers—despite readily admitting that 69 percent of such sums go to plaintiffs.
In July, the CFPB finalized its rule, preventing banks, credit card issuers and other financial services firms from requiring new customers to give up their rights to litigate.
Later in the month, House Republicans passed legislation repealing the rule. Most Republicans in the Senate are hoping to do the same, but it isn’t clear they have the votes to do it. Under the Congressional Review Act, a repeal must be signed into law sixty legislative days after the rule was finalized.
At the center of the broadside: Treasury said the Bureau ignored the threat of frivolous class action lawsuits during the rule-making process, dismissing CFPB claims about judges’ ability to scrap dubious litigation.
“As Justice Ruth Bader Ginsburg has explained, the class mechanism ‘places pressure on the defendant to settle even unmeritorious claims,’” the paper said, citing a dissent written in 2010 by the liberal Supreme Court appointee.
That opinion, however, was issued by Ginsburg before the Supreme Court drastically narrowed class action certification rules, in a landmark 2011 case, Wal-Mart v. Dukes.
“The Court gives no credence to the key dispute common to the class: whether Wal-Mart’s discretionary pay and promotion policies are discriminatory,” Ginsburg said in that case, in a partial dissent. She had hit out at the majority’s decision to fully dismiss the class action suit.
The Treasury paper published on Monday also reduced a forecast of $1.7 billion in awards to consumers as “extraordinary costs” on businesses. It additionally claimed that the CFPB ignored “important benefits of arbitration,” citing research underwritten by the Koch Industry-tied libertarian Mercatus Center.
One of the authors cited by Treasury, Todd Zywicki, has been a vociferous critic of the CFPB, while failing to disclose work for a financial services consulting firm.
The Treasury study additionally charged CFPB with failing to prove that its regulation “will improve compliance with federal consumer financial laws.” Recent financial industry scandals involving alleged Wells Fargo malfeasance and Equifax negligence have both featured the use or the attempted use of mandatory arbitration clauses.
When the CFPB was created by the Dodd-Frank financial reform in 2010, it was established as an independent agency insulated from both the Congressional appropriations process and the whims of the Executive.
The head of the agency—currently Richard Cordray—cannot be removed at-will by the White House. Litigation before the entire DC Circuit Court of Appeals is challenging that structure, in a bid to strip the CFPB of its independence.
Some Republicans in Congress are also attempting to drastically dilute CFPB authority through their Dodd-Frank repeal bill, the CHOICE Act. The legislation passed the House in June, in a 233-186 vote.
