Lauren Saunders of the National Consumer Law Center claimed in an op-ed that credit unions’ opposition to the Consumer Financial Protection Bureau’s arbitration rule makes no sense. But her argument is misleading and flawed.
In fairness, however, Saunders was correct that credit unions use arbitration much less frequently than the largest banks and other abusers of consumers. But despite her suggestion otherwise, the Credit Union National Association (CUNA) and our state league partners have never claimed that credit unions use or enforce arbitration clauses on a widespread basis. On the contrary, we have been quite clear that both disputes with their members and the existence of arbitration clauses in credit union contracts are infrequent.
This is a result of credit unions’ member ownership structure. Credit unions go to extensive steps to work with members that encounter disputes with the credit union and find a solution that is good for both the member and the credit union. Further, if a member or group of members has a dispute that cannot be resolved, they have an additional recourse that customers of banks and other financial institutions do not have: They can vote to remove the board of directors and replace management. This results in credit unions being extraordinarily consumer friendly — in fact, credit unions are widely acknowledged as the original consumer protectors in the financial services space.
While used infrequently by credit unions, arbitration clauses can be an effective way to ensure both the credit union member and the credit union’s interest are protected when disputes arise. These protections can be critically important because class action cases brought against a credit union by a group of members are inherently conflicting. They result in one pool of members’ resources being moved to another pool of members, with plaintiffs’ attorneys taking their cut in-between. It simply makes no sense for a group of members to take their credit union to court when the only winners are the plaintiff’s bar and other dispute resolution opportunities are available.
Saunders would also like readers to believe that CUNA and credit unions are hypocritical for opposing a rule that encourages credit union members to rush to the courthouse as oppose to working disputes out with the credit union while at the same time pursuing a class action lawsuit against Equifax. This is an apples and oranges comparison. For credit unions the arbitration rule would prohibit class action waivers to resolve disputes for parties that have an established business relationship with each other, and a member-ownership structure. But, CUNA and most credit unions do not have an established business relationship with Equifax; instead, they are victims of Equifax’s negligence. Because there is no contract between these parties as it relates to the consequences of this negligence, the only recourse is litigation. There is no hypocrisy in this position.
The CFPB failed to take into consideration the unique structure of credit unions in promulgating the rule and because of that it removes the ability to use a consumer-friendly dispute resolution tool for credit unions and their members.