By Heather Petersen
National Merchants Association
The Consumer Financial Protection Bureau has often fallen short of its mandate to "make consumer financial markets work for consumers, responsible providers, and the economy as a whole." While some bad actors work in the financial industry – as in any industry – the cure is often worse than the disease. The recent decision on arbitration and class action is a clear example. It's critical that we stand up and speak out to our elected representatives about this.
The CFPB's July 10, 2017, decision finalized a rule restricting arbitration agreements in contracts for consumer financial products. The ruling also bans class action waivers from these agreements. While billed as an effort to protect consumers, the ban will do more harm than good. That's why industry groups, such as the Electronic Transactions Association, and a number of payment companies are speaking out against it.
The CFPB did not truly understand the best interests of consumers or businesses when it finalized this new rule. Case in point: the ruling goes against the CFPB's own 2015 study about what works in resolving disputes between individuals and financial institutions. The change does nothing to enhance consumer protection.
CFPB estimates show the ruling is likely to generate more than 6,000 class action lawsuits, costing businesses $2 billion to $5 billion every five years. This estimate includes 604 additional federal class action lawsuits per year and $523 million in settlement costs, defense costs and trial attorney fees.
The ruling is also expected to expose an additional 53,000 consumer financial products and services providers to class action litigation. The rise in litigation costs will be passed on to consumers, either through higher prices or reduced quality of products or services. This could stifle innovation and discourage new business launches – at a time when payments innovation is at a fever pitch, with new benefits to consumers arriving daily.
All responsible financial institutions recognize treating consumers fairly is in their long-term best interests. When individual consumers are mistreated, they are entitled to straightforward resolutions based on their specific complaints.
National Merchants Association is in alignment with the ETA, which has been outspoken about supporting arbitration, as it provides higher awards more quickly without necessitating expensive lawyers, among other important reasons.
The CFPB provides little credible evidence to suggest consumer protection would be enhanced by this rule. Its study revealed the majority of consumers who filed arbitration disputes did far better financially than those filed in class actions.
Proponents of class action frequently promote it as a way for individuals to band together into a stronger collective. For example, a recent release by the CFPB recommends that individuals "join with others to pursue justice." However, the real victors in class actions are the attorneys – while the class members receive far less than they would receive via arbitration.
According to the CFPB study, consumers obtained an average of $5,389 in arbitration versus $32.35 in class actions, and only 12 percent of class actions even obtained final class settlements. The study also found arbitration is up to 12 times faster than litigation: disputes in arbitration were generally resolved between two and eight months; class action lawsuits frequently took more than two years.
Ultimately, the CFPB's anti-arbitration ruling is damaging and fails to protect consumers and businesses on every level. I am in favor of safeguards that preserve the rights and privileges enjoyed by customers and merchants and hopes to champion a reversal of this decision.
My colleagues and I are committed to taking the necessary steps to overturn this ruling. We're urging Congress to immediately repeal it through the Congressional Review Act, and we hope that others in the industry will join us in this cause.
Please contact these key elected representatives and encourage them to support legislation to roll back the anti-arbitration rule:
Heather Petersen is the Chief Executive Officer of National Merchants Association, a global leader in merchant payment processing services. NMA is a true merchant advocate, working on behalf of businesses to eliminate the unnecessary and unreasonable fees associated with accepting electronic transactions. Visit www.nationalmerchants.com or call 866-509-7199 for more information.
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