South Carolina Attorney General Alan Wilson signed on to a letter opposing the Consumer Financial Protection Bureau's (CFPB) proposed rule banning the use of arbitration clauses by companies selling some financial products.
The letter, signed by six other states, argues that the CFPB's rule exceeds the bureau's statutory authority. The comment period for the rule ended August 22.
Under the new rule’s class action provisions, the CFPB proposes barring a variety of companies that offer certain products and services from relying on arbitration agreements. The CFPB also proposes that in those cases where arbitration can be used, providers must submit records to the bureau within 60 days of any filing.
“The proposed rule also threatens to have an adverse impact on consumers because arbitration is likely to disappear almost entirely if class action waivers are eliminated,” the joint letter stated. “Consumers thus lose access to a fast, efficient, less expensive, and more convenient dispute resolution system.”
“The proposal exceeds the CFPB’s statutory rule making authority and fails to advance consumer protection or the broader public interest,” continued the letter. “The paternalistic approach of CFPB to protect consumers by banning certain contract options harms consumers, by limiting their freedom to contract and their ability to participate in an unfettered marketplace.”
The letter also argued the bureau found in its own study that arbitration can be carried out with modest cost and quickly.
"CFPB’s Arbitration Study in many ways supports the conclusion that arbitration has significant, demonstrable benefits over litigation, including class action litigation," reads the letter. "The Arbitration Study showed that arbitration is simple, less expensive, and more procedurally flexible than litigation."
That claim echoed the arguments of the U.S. Chamber of Commerce, which sharply criticized the rule as the "biggest gift to plaintiffs' lawyers in half a century" after it was proposed last spring.
“The CFPB’s own study concludes that arbitration empowers consumers to resolve disputes easily and quickly on their own without having to hire a lawyer," argued Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), and David Hirschmann, president and CEO of the U.S. Chamber Center for Capital Markets Competitiveness (CCMC). "The CFPB’s rule will have the practical effect of eliminating arbitration for most consumers. Now the agency designed to protect consumers is proposing a rule that will end up hurting them."