The Treasury Department took aim on Monday at a rule that would allow millions of Americans to band together in class action lawsuits against Wall Street firms, saying it could trigger frivolous lawsuits and drive up the cost of credit.þþIn an 18-page report, the department said the Consumer Financial Protection Bureau, which adopted the rule this summer, did not adequately evaluate the harm it could cause to consumers.þþThe report arrived amid a broader push by the Trump administration to relax or repeal regulations, including those that affect financial institutions. Treasury has published two reports recommending a series of changes to financial rules put in place after the 2008 financial crisis.þþThe arbitration rule, which is set to take effect in 2019, will prevent credit card companies and other financial institutions from using the fine print of contracts to ban class action lawsuits or force consumers into arbitration, a private system where an individual has to go up alone against a deep-pocketed corporation.þþTreasury said the rule could deal an expensive blow to financial institutions, costing them more than $500 million in legal defense fees. The real winner, the report says, are class action lawyers. At its center, the report questions the very analysis the consumer agency used to create its signature rule.þþþþ“The bureau failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest,” the report said.þþThe rule does not explicitly ban mandatory arbitration. Still, critics of the rule say it will effectively kill mandatory arbitration.þþ“The report by the Treasury Department rehashes industry arguments that were analyzed in depth and solidly refuted in the final rule,” said Samuel Gilford, a spokesman for Consumer Financial Protection Bureau. He added that the bureau’s analysis “found that mandatory arbitration clauses allow companies to avoid accountability for breaking the law and cost consumers billions of dollars by blocking group lawsuits.”þþAcross the country, judges, prosecutors and some regulators have forcefully echoed those complaints, faulting arbitration clauses for enabling corporations to opt out of the court system and depriving Americans of one of the few ways to fight abusive business practices.þþSome Democrats revived those arguments on Monday. “With this report, the Trump administration has twisted itself into a pretzel to try to undermine a rule that protects consumers from unscrupulous actors like Equifax and Wells Fargo,” said Senator Chuck Schumer of New York, the Democratic leader.þþEven in a deeply divided Washington, the move by the Treasury Department and its head, Steven Mnuchin, was exceptional: It publicly pits two federal agencies against each other.þþIt was not the first dust-up between them. In June, the Treasury Department issued a report recommending that the bureau be reined in, accusing it of overreach and calling for President Trump to be able to remove its director. The bureau is led by Richard Cordray, whom President Barack Obama tapped to lead the nascent agency.þþThe arbitration rule roiled Washington from the start. Keith A. Noreika, the acting comptroller of the currency, asked Mr. Cordray to delay publication of the rule, arguing that his own staff needed more time to review whether it posted a threat to the safety and soundness of the banks — an idea Mr. Cordray called “plainly frivolous.”þþThe friction speaks to a broader division. As many federal agencies have begun to scale back the regulations on companies, the agency, born of the 2010 Dodd-Frank financial law, has taken a different tack. Since Mr. Trump took office, the bureau has unfurled a number of new rules and boldly enforced existing ones.þþThe arbitration rule stems from concerns about the growing prevalence of financial contracts stipulating their use. As arbitration crept into tens of millions contracts, it was increasingly tough to apply for a credit card or rent a car without agreeing to arbitration. The consumer agency was specifically mandated to examine arbitration.þþThat analysis culminated in a 728-page report, released in March 2015, that found that once people were prevented from joining together in a class action, most just abandoned their claims. Those who did go forward, the agency found, did not always fare well. In the roughly two-year period examined, only 78 arbitration claims resulted in judgments in favor of consumers.þþThe financial industry disputed those findings, arguing that, on an individual basis, consumers wound up with more money in arbitration than in class actions.þþBut judges, including some appointed by conservative presidents, say focusing on the amount of money is a distraction. Class actions, they argue, are intended to help big groups of people get back small amounts of money — say a $35 overdraft fee. Class actions can push companies to get rid of questionable business practices.þþWhile the Treasury report questions the bureau’s analysis, it does not call for the rule to be overturned. Still, it could strengthen attempts by the Senate to overturn the rule. While an effort to repeal the rule passed the House, it stalled in the Senate.þþBehind the scenes, lawmakers who have been struggling to drum up support for overturning a rule that could have wide populist appeal are hoping to call a vote as early as this week, according to a person familiar with the matter. An earlier attempt to pull together votes stalled, the person said.þþAlso frustrating their attempts is a recent spate of corporate scandals involving Wells Fargo and Equifax that Senate Democrats have seized on to emphasize the importance of the new rule. Equifax, which disclosed that a major data breach had potentially compromised the personal data of more than 143 million Americans, was particularly poignant. In the wake of the attack, the company initially included a mandatory arbitration clause in the fine print of free credit monitoring product.
Source: NY Times
