If there was any doubt banks and other financial institutions abhor the Consumer Financial Protection Bureau's arbitration proposal, comment letters to the agency have put that positively to rest.
The industry resoundingly wants the CFPB to scrap the plan and start over, saying the proposal will force companies to end arbitration programs altogether and therefore leave consumers with fewer options.
"We respectfully request that the bureau withdraw the proposal because it would have the practical effect of eliminating the availability of low-cost, efficient, and fair arbitration programs for consumers," 29 state and national industry groups, including the American Bankers Association and the U.S. Chamber of Commerce, said in a joint letter dated Aug. 22.
"If the bureau will not go back to the drawing board, we respectfully encourage the bureau to consider adopting in any final rule a more tailored approach to regulating arbitration agreements that preserves consumers' access to arbitration."
The CFPB's controversial plan, released in May, would remove banks' ability to stop consumers from forming or joining class actions through mandatory arbitration agreements. But banks, credit unions and others argue the costs associated with that change will force financial institutions to go further than the bureau's proposal and abandon arbitration altogether.
The joint trade group letter said if the plan forces their members "to bear the massive expenses associated with class action litigation," they will no longer be able to provide arbitration as an option for consumers. (Other groups signing the letter included the Consumers Bankers Association, the Financial Services Roundtable and the Independent Community Bankers of America.)
"Even if the bureau were to identify concerns with the arbitration system, replacing arbitration with the broken class action system would not improve consumer welfare," the letter said.
Yet that was just one of the nearly 13,000 comment letters submitted to the bureau, of which just over 4,000 are considered discrete comments. Some participating in the 29-group letter also submitted their own letters on top of other separate industry groups that weighed in too. Meanwhile, consumer advocates, academics and plaintiffs lawyers strongly argued the other side of the issue, saying banks' common use of binding arbitration clauses restricts consumers from having their day in court.
"People are hurting, and they feel like they have absolutely no power to hold anyone accountable for wrongs done to them," said Adam Tamburelli, a consumer attorney at the law firm of Sullivan, Krieger, Truong, Spagnola & Klausner, in a comment submitted to the agency. "To add insult to injury, arbitration agreements increasingly deprive them of the last arrow in their quiver to fight back: class actions that aggregate small claims that consumers otherwise would not be able to find counsel to bring. This insidious practice is creeping further into every aspect of people's lives, such as employment, online purchases, and even contracts to which they are not party."
But representatives of the U.S. Chamber of Commerce sent a separate 103-page letter that appeared to lay the groundwork for a legal case against the CFPB's plan.
They said the bureau ignored data from its own arbitration study and that the CFPB's supervision and enforcement programs provide enough of a deterrent for companies to comply with consumer protection laws. The Chamber also did a random study of consumer complaints submitted to the CFPB about arbitration. It found that 90% were "one off" complaints, typically for several hundred dollars each, and that the unique circumstances of each claim meant they could not be litigated in a class.
The CFPB "has closed its eyes to the inevitable real-world consequence of its proposed rule: the elimination of arbitration, which would leave consumers without any means of redressing the injuries they most often suffer," wrote David Hirschmann, president of the Chamber's Center for Capital Markets Competitiveness, and Lisa Rickard, president of the Chamber's Institute for Legal Reform. "The only possible conclusion is that the Bureau has been driving this regulatory process to a pre-determined conclusion—that class actions are worth any cost to consumers."
Joseph Gormley, regulatory counsel for the ICBA, wrote that "it would not be economical for community banks to continue subsidizing arbitration for customers if they are forced to carry the high costs associated with class action lawsuits."
"Community banks invest heavily in resolving customer complaints amicably; however, when claims are unable to be resolved, arbitration is a preferable option over judicial litigation," he wrote.
Yet consumer advocates and other supporters of the CFPB proposal have pushed back against the industry claims.
"In a desperate attempt to protect the rip-off clauses that give big banks and other financial companies an effective license to steal, the U.S. Chamber of Commerce and the financial industry are going to do everything in their power to stop this rule," Robert Weissman, president of Public Citizen, said in an Aug. 23 press release.
The CFPB has estimated the proposal will cover 53,000 financial firms that currently use arbitration agreements. The firms would incur between $2.6 billion and $5.2 billion in costs over a five-year period defending against an additional 6,000 class action lawsuits. The arbitration proposal would cover banks, credit unions, credit card issuers, certain auto lenders, auto title lenders, payday lenders, certain payment processors and prepaid card issuers, among many others.
Currently, mandatory arbitration clauses affect hundreds of millions of consumer contracts; 80 million credit card holders alone were subject to arbitration clauses at the end of 2012, the CFPB found in its 2015 study.
But business groups have repeatedly cited the CFPB's own arbitration study as evidence that consumers fare at least as well in arbitration as in litigation.
"We believe that decreasing access to arbitration and increasing the prevalence of class actions would diminish consumer welfare and call into question whether the bureau has satisfied the statutory requirements that any rulemaking on arbitration agreements be 'in the public interest and for the protection of consumers' and consistent with the bureau's arbitration study," the trade groups stated in their joint letter.
The bureau had invited public comment on whether the phrase "in the public interest and for the protection of consumers" in the Dodd Frank Act established separate limitations on its authority to restrict arbitration agreements. Several lengthy letters from plaintiff's attorneys tackled that subject alone.
Hundreds of plaintiff's attorneys also commented about their own experiences turning down clients with potentially strong cases that could not proceed because of mandatory arbitration agreements. These experiences were not limited to consumers with financial services-related complaints.
"Since many California auto dealers have recently begun using conditional sales contracts containing arbitration clauses that bar class actions, consumers who were unlucky enough to have signed such contracts have seen their legal rights curtailed or altogether eliminated," wrote Carol McLean Brewer, a partner at Anderson, Ogilvie & Brewer in San Francisco.
Meanwhile, a letter signed by 210 law professors and other scholars supporting the proposal called for the CFPB to collect additional information on arbitration. Some consumer advocates asked for an outright ban on forced arbitration clauses.
"Too often, heated discussions have been based on speculation, rather than data; this is especially problematic given the largely private world of confidential arbitration," said the letter. "Reforming class action procedure should continue to be handled legislatively or administratively, rather than by allowing companies to impose arbitration clauses to insulate themselves from the class device."
A final arbitration rule would go into effect 210 days after being published in the Federal Register, which is estimated to be in the second half of 2017, at the earliest.